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Budgets? Money and Finance Basics

Next to eating healthy, following a household budget is probably the top good idea that people set out to live by that ends up failing them, abandoned with a lingering bad taste.  I believe that the reason for this is that Budgets are easy to do and just as easy to do wrong.  Also, like diets, success has as much to do with how you think about the point of the thing you create as it does with the thing itself.

budget software, ditch the budget spreadsheet
Some things are hard.

Technically, any time you say “I plan to spend this much money for this” you just decided on a Budget.  You have forecast what you would spend on something based on your current expectations in specific financial terms.  You might argue that Budgeting also requires you to have some kind of time frame like “I plan to spend this much a month on this”.  All of this is true, accurate and useless.

I suggest that the most basic useful working definition of a budget (as we mean it here at FinanSavvy.com) should include the things that are required for it to have the potential for improving your spending behaviors.  This is true whether you use a pencil and paper, a budget spreadsheet or personal budget software.

We think that means the following:

  • Documented:  You write it down.  A good budget will always be too much to remember and the very process of writing it down yields benefits if you do it correctly.
  • Comprehensive:  You include all of your expected spending.
  • Organized:  This generally means you categorize spending into meaningful buckets and time frames (e.g. weekly, monthly, annually) so that you can consider things like annual totals by category.
  • Realistic:  Your spending plans should be something you can live with and sustain.  This means you have to start by understanding how much you spend on what today and be able to compare it to your income.
  • Aspirational:  It’s a forward looking plan to consciously control your spending.  You need to know (and feel) why you intend to suffer the constraints that the budget you are placing upon yourself will entail.  It should be part of a financial plan with goals that could range from avoiding debt, to focusing spending on what matters to you the most right now, to attaining longer term goals and figuring out things like how to retire or any combination of these things.

So that’s what we are talking about here when we talk budgets, especially in our financial forecasting software. A documented, comprehensive, organized, realistic and aspirational personal or family spending plan.  We’ll talk more about all of this in later posts.

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