Do you hate the thought of a budget telling you how and when you can spend your money? Then you have the wrong idea about budgets because a budget is actually something you make up about how and when you can spend your money. A budget is actually a tool you can use to help you achieve your goals and become the person you want to be.



There are plenty of websites and personal finance books out there that will help you put your budget on paper. But do you know why you need a budget? Do you know why budgets are mentioned in every personal finance plan out there?

It doesn't matter if you make 6 figures and own your own home, invest in the stock market and drive a BMW or if you are barely making it on $30 grand a year and have your kids on medicaid. You need a budget!

A budget is actually a plan that you make to fund your dreams. Take your goals, your long term goals, your short term goals and everything in between. Figure out how much each goal is going to cost. (Yes, I recognize some goals do not require money. Great. But those are not the goals we are talking about here.) Figure out how much each will cost and when you need that money.

Figuring how much you need for a new car in two years or a cruise next winter won't be that hard, but to figure out the cost for something like retirement or a second home, you may need to consult a financial planner.

Once you know how much money you need to pay for your dreams, you have to figure out how to save that much in the time period you have. Going into debt is not usually good. It gets you things in the short term, but in the long term it just costs you money and stress. You'll probably need a mortgage on your home. You might need some student loans. Maybe you could take out an auto loan, but think three or four times before you take on any debt!

Once you have your dreams and their cost written down, find out where you are. Write down your income and all your expenses. Check your check book register and your credit card bills to figure out your expenses. You can find lists of possible expenses online, just google "make a budget" and you will find lots of examples. You'll probably want to take 2 to 4 weeks to write down all your expenditures to make sure you don't miss all the little things you spend cash on each day--those add up.

Once you know where you are, make sure you are not spending more than you make.

Now, look at your expenses and make sure you are spending your money on things that are important to you. A lot of times we don't realize how much we spend on eating out, books and CDs, and clothing. How much are you spending on fuel? Can you find places you would be willing to cut back just by thinking about how that money could be used elsewhere? Make sure you are saving money, not only for retirement, but in your emergency fund as well (your emergency fund should have about 3-6 month's living expenses in it).

Once you make sure you're not overspending and you are paying for the essentials (food, clothing, shelter, transportation, retirement, insurance, and emergency fund), then start saving for your dreams! Each month as you put money away toward what really matters, you will find freedom in your budget and in living to become who you really want to be!