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Breaking Down a Budget

Budget. A simple word, but often a misunderstood. Many people, upon hearing the word “budget,” subconsciously react in a fearful and defensive manner. I have seen strangers, coworkers, acquaintances, and even friends and family members react in similar ways time and again when I bring up my family’s budget. You may have seen it too, or even noticed it in yourself. It is a reaction the displays discomfort and negativity to the topic of money, or even changing the subject. I have even experienced laughing exclamations of, “Budget! That’s a good one!” It is a sign that many people are insecure about their own finances and feel trapped by their circumstances, or feel a lack of money. I think fear and discomfort about budgets comes from a place of misunderstanding of what a budget is. Since I am a teacher, I am going to get all nerdy and teachery and break down a ‘budget’ into simple vocabulary, which I know you will love (my students sure do ;)!

What is a Budget?

I think a budget can be summed up and broken down into two basic definitions.

Simply stated, a budget is a plan. It is a specific, intentional plan of how you spend your money each month. Imagine for a moment that you are going on a hiking trip next week through the Grand Canyon. You will be carrying all the supplies you will need in your backpack and you will be hiking for five days. I’m betting there is a good chance you will want to make a plan of what you will need to take with you, which trails you will be hiking, what the weather will be like, how long you can hike each day, etc. There are a lot of decisions to make before you get started. On the other hand, you might be able to wing it, to just grab some supplies, start hiking, and who knows, maybe you will be just fine, but I’m guessing you would rather take the first option and a trail guide. If you create a budget at the start of each month, you will have a road map and a plan of exactly how you are going to spend each dollar that you earn. It is an opportunity for you to tell your money where to go instead of it controlling you. Creating a budget is similar to choosing the first option through the Grand Canyon with a clear starting and ending point, with maps, adequate supplies, and a tour guide. However, most people don’t make a budget each month and choose the second option of winging it. Maybe this is you, and it might be working out okay, but it might feel like a struggle. If you feel like you are constantly short on money, have too many bills, and are trapped by your financial circumstances, creating a budget could be the first step towards having a plan!

A budget is also a list of priorities. If you show me how and where you spend your money, I will get a pretty good idea of your priorities. The way you spend your money paints a picture of what you value and believe is important. For example, if you spend money eating out, it shows that you may value good quality food and atmosphere, social time with friends, or even that you hate cooking. If you spend a large portion of your money on gas and car repairs, you may place a high value on traveling, road tripping, or visiting friends and need to invest in your vehicle to make that happen. Maybe you have a hobby such as rock climbing, playing guitar, painting, knitting, or woodworking. All of these hobbies require you to spend money to improve, practice, and create. Or if you’re like my family, you have a lot of student loans to repay and a big chunk of money goes to repay that investment every month. No matter how you spend your money, your highest priorities often become your highest expenses.

Wrapping It Up

I usually don’t like to make general, blanket statements, but I think it is pretty safe to say that everyone makes money and everyone spends money. If that’s you, you can make a budget! (For specific steps on how to get started, check out this post on how to start a budget) You can begin each month with a plan of how to spend every dollar and give your highest priorities the most attention. The great thing about creating a plan is that you can always adjust it as your needs and priorities dictate.

Let Me Know in the Comments

How is your plan for your money working? What does your money tell you your highest priorities are?

 

 

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Posted in Becoming Debt Free, Budgeting Tips and tagged , , .

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