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Basics Beginner: Building a Budget

Introduction to Building a Budget What Is a Budget? Budgets Compare Money Flowing In and Money Flowing Out What Are the Parts of a Budget? What Does a Budget Look Like? Economizing with a Budget Budgeting Rules of Thumb How Much Do People Typically Spend on Their Expenses? What Do Budgeting Tools Offer? What to Look For in a Budgeting Tool Types of Budgeting Tools Summary of Building a Budget
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What Is a Budget?

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What Is a Budget?

"You really need to make a budget and stick to it." Hopefully, we haven’t lost you, because those 10 words may have started more arguments and domestic disputes than any other words in the English language. There have been television sitcoms based on the premise that budgeting is just too funny and cannot be taken seriously. In fact, the financial planning community doesn’t like to use the term budget. Instead, they call it "cash-flow management."

Things To Know

  • If you handle money, you already have a budget.
  • Budgets consist of cash coming in and cash going out.

Everyone has a budget

Everyone who handles money has a budget, whether they know it or not. It may not be written down, but it is there just the same. For example, mom gives her eight-year-old son a $10 allowance for the week. Does Sonny go out and spend it on a CD, candy, or school supplies, or does he save it to make a larger purchase in the future? It doesn’t matter how you answer the question. However Sonny "spends" the $10, he has made his decision based on his budget, although it wasn’t written down.

A budget has two main components: cash coming in (inflows) and cash going out (outflows). If you subtract the outflows from the inflows, the answer should always be zero. That’s called balancing the budget.