What Is a Budget and Why Do I Need One?

what is a budget? how to save money.

(***YAWN***) The word “budget” is enough to make many people’s brains switch off, so if you’ve already tuned out, come back and hang in for just a few minutes. You’re not alone in being bored by budgeting, but this is the kind of thing where a little thought can do a lot of good.  

What is a budget?

You already know what a budget is, at least in the general sense.

A budget is a financial tool based around how much money you make and spend over a fixed period of time (say, a month, a quarter, or a year) with the goal of saving more than you spend. It’s a key step in achieving both short- and long-term financial goals.

Having a budget empowers you to:

  1. Cover your monthly expenses and pay your bills on time
  2. Buy the things you need and some of the things you want
  3. Save for debt reduction, an emergency (such as a job loss), large future purchases (a home), and/or your retirement (which is closer than it seems).

There’s no one-size-fits-all solution for creating a personal budget (or sticking to it), so we’re going to explore your options here on The Living Room over a series of articles.

Whether your method ultimately consists of a detailed spreadsheet, a clever budgeting app, dollar figures scrawled on color-coded Post-Its, or even just a subtle shift to your mindset, often the biggest hurdle is simply getting started believing you need a budget.

Keep in mind, devising a workable budget isn’t about deprivation and making things harder on yourself – it’s about taking control of your money instead of allowing your fear of money (mostly, not having enough of it) control you. However long this race may be, focus on the big picture, not the sometimes-painful journey. The more experience you have, the easier it gets.

As an added bonus, some of the biggest benefits to creating a budget are things that you literally can’t put a price on: You won’t feel guilty about every little spending indulgence, your overall stress level will drop, and you’ll sleep better at night. 

3 types of budgeting to explore:

50/30/20 budgeting

Envelope budgeting

Zero-based budgeting

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