Types of Budgets

If you research budgets you’ll find there are many styles, types and philosophies. They range from very simple to extremely complicated. You can do your own budget or pay someone else to do one for you. Some budgets are nothing more than listing how much money you spend each month. That’s really not a budget but more like accounts payable. Some of the on line programs help you decide which bill to pay and how much to pay each month. It’s important to ask yourself what you are trying to accomplish by creating a budget.

The purpose of a budget is to help you manage your money. In the ideal budget you have excess money that can be used to pay off debt, make investments, or put in savings. Many times you do not know there is excess money until you are on a budget and realize how much you are spending. Doing a budget forces you to look at all your expenditures. This helps you determine what you can do without, if you are duplicating your expenses or if there are things you can spend less for.

Another purpose of a budget is to help you learn to spend only what you make. Your spending is based on the amount of your income. If you don’t have enough funds you either cut out expenses or do something to make more money. Unfortunately too many people utilize credit in this situation.

There are numerous ways to budget your money. Some people prefer to have several different checking accounts – each with a specified purpose. For example they might have all bank drafts come from one account. They make sure all the critical expenses are covered first. Left over money is placed in an account that is used for spending and groceries.

Another method is the -0- based budget. Every dollar you earn is allocated to an expense, including savings. The purpose is to help you learn to spend only what you make. Others use checking accounts to pay their bills and keep cash at home for spending money. They allow so much money for spending (some people put the money in envelopes labeled for certain purposes) and when the money is gone they do without.

In my opinion the type of budget you use is not as important as making the choice to budget. The plan you use should be easy, it should support your goals, hold you accountable and there should be enough flexibility to make changes if needed.

Experts recommend you include saving money as part of your budget. You should pay yourself first. Do this regularly and you’ll have the needed funds for emergencies and future purchases. College, retirement and other long term goals should be part of your savings. Many times individuals put this off until they can afford it. That’s a mistake. Lack of planning can be disastrous. With no planning and no discipline, your finances become a game of chance.

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