What is a Budget & Goodbudget
Usually no one wants to talk about budgets, no one wants to think about budgets, and no one wants to follow a budget. Before we can create, plan and build a budget, we must first understand what is budget, the different types of budgets available, what makes a goodbudget and what kind of budgets we can create.
1) What is Budget?
- A budget forecasts the financial results and financial position of a unit. This unit can be a company or an individual, a family or household even governments for one or more future periods
- A budget is a summary of your income (revenue) and expenses over a specified period of time.
2) Types of Budget
- Personal & Household Budget
A personal budget or home budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment.
- Business Budgets
The most common budget types includes the master budget, operating budget, financial budget, cash budget, static budget, flexible budget, capital expenditure budget, and program budget.
- Government Budgets
Government has 3 types of budgets. A Balanced Budget is when government revenues (tax collections, receipts) are equal to the government expenditure, it is called a balanced budget. A deficit budget is when their expenditure exceeds revenues. And finally, a Surplus is when revenues are more than expenditure.
Surplus are a rarity nowadays. The United States had a budget deficit in 2002, and it has recorded budget deficits every year since.
3) There are 3 Major Types of Household Budgets
- Zero Sum Budget - Ides to Stop Losses
This budget is simple. Your objective is to subtract your expenses from your income to try and get down to zero dollars left at the end of the month.
This budget is good to stop spending so that you dont incur further losses.
- The Three Step Budget - Grow Money Budget
Created by Andrew Tobias. This budget requires that you first destroy all credit cards and then invest 20% of your earnings and live on the remaining 80%.
This is normally for the more disciplined individuals. This is great for you if you want to have an idea of what to spend, but not be strapped down to categories.
- 50/20/30 Budget
Popularized by Senator Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to take your income and spending 50% on needs and 30% on wants while allocating 20% to savings.
It is similiar with The 3 step budget butit gives more clarify on how to seperate your spending.
Benefits of Goodbudget
Now that you know what is budget, types of a budget, lets look at why your should have a Goodbudget.
1) Reason #1:
A goodbudget puts you in control of your money instead of your money controlling you.
- What did you spend your last $100 on? You may not remember. Maybe it was a pizza, or stickers for your children, maybe it went to piano lessons or a new pair of boots.
- The point is, many people have no idea where their money goes. When you set, and follow, a realistic goodbudget your cash is freed up so you can spend your money on things that are important to you and your family rather than spending it on purchases you won't remember buying ten minutes later.
2) Reason #2:
A goodbudget can improve your relationships. There's little worse than the stress money can cause. Debt causes tremendous stress and so does the fear that you won't be able to pay your bills. It can ruin your health and it can destroy relationships.
- When you form a financial plan with your family you work together as a team to reach your goals. The lines of communication are opened and the stress is eliminated.
- Additionally, when you're all on the same page financially there are no arguments about money, which makes better relationships with your spouse and your children.
3) Reason #3
Most people would agree that it is better to live within your means than to get into debt. However, some people don't realize they're living beyond their means until it is too late and the debt has become overwhelming and stressful.
- A good, sound budget keeps you living within your means and prevents or eliminates debt. A structured and realistic budget prevents the 'Oops I spent too much on my credit card this month' mistake that we often make month after month until we're paying more on our minimum balance than on our mortgage.
Take advantage of the power of a goodbudget and gain control over your financial life. There is absolutely no downside to forming a budget. Start today and take a few minutes to realistically analyze your spending habits, your income, and your financial goals. I promise you'll be glad you did.
