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A budget is an estimate of ones income and expenses for a given period of time . Budgeting is the act of making, managing and sticking to a budget. Budgeting is related to financial planning because it helps organize your money flow and allows you to know where you should be spending your money. Click here to view important budgeting guidelines: Budgeting Guidlines

The main purpose of this is to:
  • Ensure all bills are paid
  • Decide how much to put off into a Put and Take account


Budgeting is a routine thing and should not be something to dread on. A good budget should have four main things:

  • Purpose – What is the reason you are creating a budget? Base the design on this.
  • Flexibility – The format of the budget should be flexible so that it can be modified if needed.
  • Simplicity – If the budget is complex and hard to follow, the chances that one will stick to the budget decrease.
  • Expecting the unexpected – You will find that things will come up and at times be an inconvenience, in case this happens ensure that you save money for such situations.

Generally if one follows these budgeting guidelines, they will be successful.

“Paying yourself”:

What does it mean to “pay yourself”? Paying yourself essentially means taking note of all revenue and deciding what must be paid for, after which you can “pay yourself” the rest of the money. Why should you “pay yourself”? This takes care of the worry of bills not being paid. There are many many ways to effectively “pay yourself” and make a successful financial plan. One of the plans is the 60/40 solution. This solution says to reduce your spending down to 60% of your take home pay and leave the other 40% to pay of debt and use for other investments.

The 60/40 solution breaks down your income into percentages of where your money should go. The 60% goes into things you will pay for on a monthly basis. Examples include:
  • Taxes
  • Food
  • Insurance
  • Car/House/Electricity bills
  • Amongst other necessities

The remaining 40% should be used for savings and other payments that are considered “not completely necessary”. Examples include:
  • Retirement
  • Long-term savings in a put and take account
  • Vacations
  • Repairs
  • “Fun Money”
  • Money used to provide entertainment like TV, Gaming, Special Events. Note that this should always be last on your list.

Advantages of Budgeting:

Why is this all mandatory? Why must I create a budget in order to be successful with financial planning? There are plenty of reasons for this. Consider the hypothetical situation in which something has unexpectedly come up and you don't have the money to pay for it, what do you do then? This is the result of poor financial planning. You must always expect the unexpected. Examples of “unexpected situations” are:
  • A death of a family member
  • Your car is totaled
  • Your house catches on fire and many of your possessions are lost in the inferno.
With budgeting these unexpected situations are not something that you should fear of putting you in debt. People falsely believe that budgeting is restricting your spending power when in fact its the opposite. With budgeting you can reach your goals and ultimately have more money for leisure.

Want more info? View this video for helpful budgeting tips.

An example Budget

Consumer Expenditures 2010
60% Solution
5 Stages Of Investing
60/40 Solution

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