An often overlooked tool in managing your personal finances, the basic budget is where it all begins, so you need a budget reivew. The budget is the foundation from which all other things relating to your personal finances are built. Ironically, many of us have the tendency to set our budget and move on to bigger and better things. We may tweak the budget if we remember a change or make the occasional adjustment, however few people take the time to really sit down and review their budget on a routine basis. This lack of attention to the very basis of all financial matters can result in costly mistakes in the long run. If you haven’t reviewed your budget lately you may want to think about doing so soon. And if you haven’t even created a budget yet, don’t worry. Here’s how to create your first budget.
Purpose of a Budget
For each person, the word budget has a different meaning. Some people find the concept of budgeting to be restrictive and unnecessary. Others envision a list detailing how much money you have from your paycheck compared to the number of bills you have to pay. In reality, the purpose of a budget is not to restrict spending or to tally up income versus expenses. The real purpose of a budget is to assign each available dollar to a specific place. You should never have to say to yourself “I can’t pay my bills.” When you have finished making your budget, there should be neither deficits nor surpluses. A balanced budget means you have assigned a job to every dollar. Some jobs might be paying bills while other jobs might involve investments. There will be areas in your budget which provide for entertainment, spending, dining-out, clothing, and your grocery budget. Other categories or “jobs” include savings, emergency fund, vacation fund or any other financial goal you are working toward. Establishing a true budget will allow you to see where every dollar is spent and track the progress of financial goals.
Importance of Reviewing Your Budget
When you understand the purpose of a budget, it becomes clear why routine reviews are necessary. Everything associated with personal finance and money management is constantly evolving. Due to the amount of time invested in establishing a budget, many consumers opt to make little adjustments to signify changes. These little adjustments affect how your money is delegated within your budget. Over time, the number of changes add up and eventually your budget becomes less effective at helping you manage your finances. A monthly budget calculator can help you manage these small changes without doing a major overhaul every time your finances change. This will keep you on the right track until it is time for your annual or semi-annual budget review.
Common budget changes
There are certain areas of your budget which are more likely to see change than others. Verify income streams as this is one area which may see fluctuating numbers. Other sections of your budget which may need to be adjusted include savings, investments, debt repayments and day-to-day living expenses. By taking a close look at your budget at least once a year, you can ensure all of your money is being utilized in the best possible manner. Managing your money begins and ends with maintaining a budget that is a true reflection of your income streams and all financial obligations.
So are you in need of a budget review? When was the last time you had a budget review?
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Filed Under: Personal Finance
About the Author: KC Beavers is a semi-retired entrepreneur. The subject of personal finance has always fascinated him. In an effort to not bore those around him with all his love of personal finance as much he has come here to bore all of you instead. Be sure to follow KC on Twitter or Google+.