A budget is a vital tool for changing the way you handle your money.
When you are budgeting, you understand where your money is coming from and are purposeful about where you spend it. You are making your money do what you want it to do, rather than spending without a plan.
The goal of budgeting is to always spend less than you earn.
When you create a budget, you assign every dollar you earn to a spending category. You can use a budget to:
- Reduce your spending
- Understand where your money is going
- Identify bad financial habits
- Pay off debt
- Avoid creating new debt
- Prioritize spending on things that are important to you
- Save for the future1
Budgeting is not a one-time action. It should be something you actively engage in every day. You may need to adjust your budget from month to month to account for large expenses or your own spending habits.
When you know how much income you have, you can decide where to put it. When you are deliberate about where you spend it, you are in control of your money. This is the first step towards making it work the way you want to, rather than feeling controlled by your finances.