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Articles - Money Management
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Back to Money Management view printable version 
Why Budget?
A budget is the most fundamental and most effective financial management tool available to anyone.
Yes, anyone-whether you are earning thousands of dollars a year, or hundreds of thousands of dollars. It is extremely important to know how much money you have to spend, and where you are spending it. Yes, some of your "spending" might be for investments, but there is an important distinction between creating a personal budget and deciding where to invest your extra income. A budget is the first and most important step towards maximizing the power of your money.
"Though usually overlooked, setting up a good personal budget is the first step to any money management activity. Without it, you cannot control your finances and will always fall short of your goals."
Mark J. Randall, Certified Financial Planner
What is in it for you?
Just about everything. A carpenter would never start work on a new house without a blueprint. An aerospace firm would never begin construction on a new rocket booster without a detailed set of design specifications. Yet many of us find ourselves in the circumstance of getting out on our own and making, spending, and investing money without a plan to guide us.
Budgeting is about planning. And planning is crucial to produce a desired result.
What is a budget?
A budget is a money plan. With it, you can organize and control your financial resources, set and realize goals, and decide in advance how your money will work for you. A budget can be as simple as it is powerful.
The basic idea behind budgeting is to save money up front for both known and unknown expenses.
Seven Benefits of Budgeting
So what benefits, specifically, can you expect if you set up a budget? Naturally, the answer to this question will be different for everyone. But here are some of the most common benefits that people see when they start a budget:
Know what is going on. Personal budgeting allows you to know exactly how much money you have-even down to the penny, if you so desire. Furthermore, a budget is a self-education tool that shows you how your funds are allocated, how they are working for you, what your plans are for them, and how far along you are toward reaching your goals. "Knowledge is power," as the oft-quoted saying of George Eliot goes, and knowing about your money is the first step toward controlling it. That leads us to our next benefit:
Control. A budget is the key to enabling you to take charge of your finances. With a budget, you have the tools to decide exactly what is going to happen to your hard-earned money-and when. You can be in control of your money, instead of having your money limit what you do. This bears repeating: you can be in control of your money, instead of letting it control you!
Organization. Even in its simplest form, a budget systematizes, or divides, funds into categories of expenditures and savings. Beyond that, however, budgets can provide further organization by automatically providing records of all your monetary transactions. They can also provide the foundation for a simple filing system to organize bills, receipts, and financial statements.
Communication. If you are married, have a family, or share money with anyone, having a budget that you both (or all) create together is a key to resolving personal differences about money handling. The budget is a communication tool to discuss the priorities for where your money should be spent, as well as enabling all involved parties to "run" the system.
Take advantage of opportunities. Knowing the exact state of your personal monetary affairs, and being in control of them, allows you to take advantage of opportunities that you might otherwise miss. Have you ever wondered if you could afford something? With a budget, you will never have to wonder again-you will know.
Extra time. All your financial transactions are automatically organized for tax time, for creditor questions, in fact, for any query which may come up regarding how and when you spent money. Being armed with such information sure saves time digging through old records.
Extra money. This might well be everyone's favorite benefit. A budget will almost certainly produce extra money for you to do with as you wish. Hidden fees and lost interest paid to outsiders can be eliminated forever. Unnecessary expenditures, once identified, can be stripped out. Savings, even small ones, can be accumulated and made to work for you.
"Copyright 1997-2003 Re-printed with Permission of Tulip Tree Press (http://www.TulipTreePress.com ) and Jane E. Chidester and John L. Macko, authors of "BudgetYes! 21st Century Solutions for Taking Control of Your Money Now!"
(Available in Bookstores, Amazon.com, or TulipTreePress.com.)
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