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Have you heard of those people who pinch pennies, clip coupons, and track all of their expenses? Pretty weird, right? To many, yes, they are weird. They waste their time. They should get a higher-paying job so they don’t have to do those silly things. That’s one perspective, but there is another. To others, they are smart. They make their current income stretch farther and work harder than someone with a higher income can! I look forward to defending that statement but to start, let’s agree on a definition for the ambiguous term, "budget".
What Is A Budget?
A budget is simply a spreadsheet, digital document, or scribbling on a napkin that keeps track of expenses and demands money go where you desire. The illustration to the left gives an example of a budget where 50% of the income is spent paying bills and the like. In the example, 20% is saved for future expenditures or paying off debts. The remaining 30% can be spent however desired. This is one example of a budget; the percentages can be adjusted in any way (as long as they total 100%) and sections can be added or subtracted to fit your circumstances. If you are super organized, make a meticulous budget; if you aren’t, scribble something down and stick it to your refrigerator with a wad of gum.
Why Should I Make A Budget?
If someone offers you the option of doubling a penny's value every day for a month or a million dollars in one lump sum you should definitely choose the former (see image at right). However, that is not the reason I attached the image. I included it because this example shows the power of saving money, however impractical this specific example may be. A budget allows for money to be saved for its needed purpose, and that includes fun, luxurious purposes.
For example, let’s say that John makes $1500 per month. Automatically, he should pay off his bills and set aside money for future bills. Using the above model of 50%, let’s say about $750. Then he should decide how to spend the remaining $750. According to the model, 20% should be saved or used to pay off debt ($300 in this situation). Lastly, the remaining 30% ($450) is saved to use however John desires. Compare that with Erin’s spending habits. Upon receiving her paycheck, she fills up the gas tank without tracking how much it cost. Then she stopped by the liquor store and purchased a bottle of wine that cost…well, she doesn’t remember that either. When she gets home, a bill for electricity usage is among the mail. After paying that off, she proceeds similarly with life throughout the month and is almost broke when she receives her next paycheck. That is how a budget saves you money! It prioritizes expenditures and allows for fun activities at a time when you can afford them. If you only ever purchase exactly and only what you need, this article is unnecessary for you and I apologize for wasting your time. (I’d like to learn from you!)
How Do I Make A Budget?
Like this mustached gentleman to the right, think of and write down the areas of your life that require money. Then assign a percentage or amount of your income to fund those things. That's it! Don't make it fancy unless your circumstances require it. Just follow those steps and you will be a millionaire in as little as seven days! I’m kidding but I promise that you will be better off financially from making and following a budget.
Regardless of how you view our government’s spending, I encourage you to take a look at the following graphic. It shows the process that the U.S. government follows when making a budget. There are no numbers attached so try not to get up in arms about this example. In my opinion, the process showcases responsibility in the highest degree, regardless of how the money is delegated. Thank you for reading and I sincerely hope that this article helps you save money.