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What Is Budget – A Simple Explanation
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I found it hard to believe, but my coworker actually asked me what I meant by the word “budget.” the other day. Apparently, I was going on and on about how I couldn’t go out for drinks after work because it would break the entertainment section of my budget for the month. At first, I thought, Jim, my coworker, was kidding, but then I realized he was serious. I guess as a computer guy he wouldn’t need to know what a budget was, at least not as much as someone in the finance department, but still. He’s 31. Didn’t he have to take some consumer education class in high school or college?

In case there are more people out there who don’t know what a budget is, I’ll run through some basics about it. I guess I took for granted that other people knew what it was (I mean you’re at this site right?), but just to be on the same side, here we go. A budget, and consequently budgeting, involves setting up a plan that shows what you will be spending money on so that you can set money aside for financial and personal goals. Now, for some people, this probably brings up bad images in your mind. You might envision wearing the same clothes day in and day out because you can’t afford new ones or having to eat a single piece of turkey for lunch, every day, for the next two months. Not the case at all, unless you are in worse student loan debt than I am.

A budget isn’t around to limit your fun. It is there to help you reach your goals and keep you focused on what you want to achieve. Having a goal in mind helps you realize that you don’t need to waste your money on something that really will serve no purpose for you in your current situation. It comes back to the issue of what do you “need” and what do you “want.” Of course, we all want stuff, but we have to be able to balance that out against what we need. For instance, I need to make my car payment this month while still paying off a large chunk of my Student Loan. I want to go out socializing with all my friends from work, but I don’t need to spend $25 at the bar to do so.

The best way to start work on your budget is to track your spending over the course of three months. When I say track your spending, I don’t mean say you blew around $45 bucks last night, but the record that you spent $39.47 when you went out to dinner with your girlfriend. Along the way, you’ll probably notice some expenses creeping in that you always make, but that you don’t really understand why it costs so much. If you’re enjoying those little things, that’s fine, but if they only provide limited joy, consider what you could do with that money instead. For instance, a friend of mine once calculated that with all the money I spend at Starbucks, I could buy two roundtrip flight tickets and a hotel to stay at for a week, anywhere in the world. But I like my Starbucks more.

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