Budget Basics: The Importance of Tracking Your Finances—and Your Goals

What is a Budget?

In the simplest terms, a budget is a plan for spending and saving your money. Whether it’s your own personal budget, your family budget, or a small business budget, this plan takes into account how much money you make over a period of time and how much of that you spend.

But a budget should also be seen as much more than that. Budgeting isn’t just about ensuring that you’re accounting for all those incoming and outgoing dollars and cents: It’s about priorities and goals, even hopes and dreams. By preparing a budget, you can take charge of not only your immediate needs but take control of your own personal data to develop a concrete action plan for achieving your personal and financial goals.

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Budgeting Benefits: Making the Most of Your Plan

When budgeting comes to mind, for many, it might seem like little more than a plan for tightening your belt—a scheme for making sure you’re not spending frivolously. While creating a budget can definitely help keep you from overspending, it can just as well afford you the freedom to know when you can treat yourself to that little something extra.

On top of that, budgeting beginners might think a budget needs to be fixed and inflexible. But that couldn’t be farther from the truth: The best budget is a living document—something that can and should adapt to suit your changing wants and needs.

Along the way, you may also experience these other benefits of budgeting:

• Get a clear picture of things: Creating a budget and tracking your progress provides you with a transparent view of your finances and spending behavior. Part of the importance of keeping a budget is having this window into both the big picture and the day-to-day details of your financial habits.
• Avoid and pay off debt: By setting targets for your spending that are based on how much money you have coming in, you can not only help avoid new debts accrued from overspending but make sure you set aside enough money to pay down existing debts and work toward a debt-free future.
• Set goals for the future: Want to take a relaxing vacation next summer? Saving to buy your first home? No matter the size of your goals, a budget can help you realize them by helping you save what you need to over time.
• Find peace of mind: A budget’s all about taking control. We’ve all got expenses—from groceries and housing to celebration dinners and new furniture. When you know how much you have to spend and what you’re spending it on, a budget offers the added benefit of bringing a sense of security to your financial life.

Budgeting Basics: How to Get Started

If you want to create a new budget, you’ll need two basic inputs: your income and your expenses.

While budgets can work against any timeframe, it’s usually easiest to work on a monthly basis, which means you should start with your typical monthly income. Of course, not everyone receives a weekly or bi-weekly, bi-monthly or monthly paycheck. If your income comes at irregular intervals, you can use a monthly average to get started.

From there, you’ll need to tally your monthly expenses. Begin this process with the easiest payments to account for, the ones you know you’ll have to make monthly: rent or mortgage payments; any payments toward debts; and utilities like electricity, gas, and internet.

As you note your expenses, it might help to put them into a spreadsheet that will be easy to save and quickly update. Likewise, you can use one of the budget templates available for Excel. These templates not only help you organize your expenses visually but will also do calculations for you to save you time and effort.

Next, take a look at a recent bank statement to understand how much you’re spending in other categories—groceries, subscription services, and entertainment, for example. You should be able to come up with at least a rough figure of your regular monthly expenses—and you might be able to identify some places to cut down on spending.

With your two figures—your monthly income and monthly expenses—you can create your first basic budget. All you need to do is subtract this expenses number from your income, and you’ll quickly gain a sense of both whether and how much you need to make adjustments to your spending.

Keep Moving Forward

Whether the number you end up with from this calculation is negative or positive, most importantly, it’s a start. Having taken this crucial first step, you can move on to identifying places where you can find additional savings, whether that leads to freeing up an extra few bucks or a much larger sum, and start to make room for your future spending goals.

Whatever goals you might have in mind, a simple spreadsheet in Google Docs or Microsoft Excel can help you stay on top of your finances. Plus, with the right tips, tricks, and support, you can use these spreadsheets to become a budgeting expert. And as you’ve seen, being equipped with the power to budget can ultimately power your progress toward accomplishing your life’s biggest aspirations.