What is a Budget?
A budget is an estimate and planning of income and expenditure, and commonly refers to a methodical plan to spend money a certain way.
Generally, budgets are created to reach certain financial goals, such as paying off several credit cards, reaching a certain savings goal, or getting income and expenses back on track. While some people may prefer our budget calculator or our free budget template, others may prefer different methods. Modern technology has paved the way for many different budgeting software and apps. They all have their pros and cons, but the one that works best is the one that budgeteers will bother sticking with as best as they can.
How to Budget
Budgeting can generally be summed up by two things: living within your means and planning for the future. Successful budgeting usually involves having a detailed personal budget and adhering to it.
Millennia-old religious teachings, countless online resources, and thousands of financial advisors over time have echoed the principle of living within your means. As simple as it may seem, many struggle to implement it successfully in their lives, as the statistic that eight out of ten Americans are in debt, shows. The reason why people are not able to adhere to the principle is generally due to reasons such as:
- Spending more than their income allows-The biggest financial blunder people can make is simply spending more than they earn, which over the long-run snowballs into more and more debt.
- Trying too hard to keep up with the Joneses-In consumerist societies, conspicuous consumption, defined as the spending of money on, and the acquisition of, luxury goods and services to publicly display economic power, is common.
- Overly relying on credit-This borrowed money allows people to live beyond their means temporarily. However, if borrowers are unable to pay back the borrowed money on time, they will probably find themselves in a sticky financial situation.
- Lacking knowledge-Not everyone is expected to be an expert on personal finance, and it is very possible that misinformation or lack of awareness can lead to people living outside of their means. As a result, it can be helpful to learn more about personal finance.
There is a reason why entire departments exist within many corporations for the sole purpose of budgeting and forecasting, as budgeting and forecasting are very important factors when trying to achieve certain financial goals. This concept applies to individuals as well, as it can be hard to achieve personal financial goals successfully without first planning for them. Proper planning can help predict future financial standing according to best estimate forecasts of income and expenses. Proper planning can also help with:
- Mitigating sudden misfortunes (everyone encounters expected and unexpected life events)
- Loading up on emergency funds
- Weather heavy-debt seasons
- Getting ready for the purchase of a new house, car, or other major purchase
- Properly managing investments
A personal budget can help people live within their means and plan for the future. The Budget Calculator evaluates the components of a personal budget and highlights which specific areas need improvement.
We have created a free, basic, budget template for people who want to start budgeting their personal finances on a month-to-month basis. While it is not the most feature-packed budgeting tool in the world, it was created as a way for people to get motivated and started on their budgeting goals, then eventually move onto more intricate budget-planning tools. It can also serve as a supplementary tool to annualize net income as calculated based off of our Budget Calculator. There is also a computation for annualized expense-to-income ratio. Use our Budget Calculator every month, then update the figures in a saved version of our budget template. The annual net income will update accordingly. Please click here to download our free budget template.