Dear daughter,
Today I want to tell you what a budget is. For me, it was, and it still is, a life changer.
A budget is an estimate of you of the income and expenses you will have during a certain period.
If you search on the internet, you will find different types of budgets, definitions related to economics, and a lot of other things.
Here I want to make a short no-nonsense guide so you can start learning about this important topic quickly and practically.
So, a key point in doing estimations is to have some data. The same applies to a budget. You need to know what your regular income and expenses are so you can budget for them.
Is budgeting for you?
Yes! It is!
Budgeting is for everyone. At least for everyone that wants to have control over their money.
A simple budget example
Income
| Amount | Source | |
| 1000 | paycheck | |
| 200 | Rental property | |
| Total income | 1200 |
Expenses
| Amount | Category | Real expended | |
| 120 | Investment | 120 | |
| 400 | Food | 390 | |
| 150 | Tax and rates | 150 | |
| 100 | Entertainment | 90 | |
| Total | 770 | 750 |
As you can see, is not complicated to create a simple budget.
But the benefits are huge.
You will be able to control your money, instead of allowing your money to control you.
Do not confuse budget with expense tracking. Budget is more than just tracking your expenses. You should allocate the amount of money you are planning to spend in different categories like food, entertainment, etc. And you also have to track your expenses so you can stick to your budget.
Let me ask you a quick question.
Does it sound familiar to hear yourself saying “I don’t know how I spent this amount of money”?
If it sounds familiar, then the solution is simple, create a budget and track your expenses.
If you do it, you will never find yourself saying that you don’t know where your money went.
Always remember, be the master of your money, don’t allow the money to be your master.
Every single cent that you earn, must go where you decide it should go.
Having a budget helps you against impulse buying, unnecessary expenses, keep you out of debt and temptations, and even keeps you away from herd mentality.
When you have a budget, and you see something that suddenly you want to buy you just need to ask yourself: is it in my budget?
If the answer is yes, you buy. Otherwise, you walk away.
If you manage to have the discipline to follow your budget, you will master your money. As a nice consequence, you will always have enough money for the things you really need, the things that are included in your budget.
The rest of the things are optional. Otherwise, they should be within your budget.
Dear daughter, be the master of your money, not the other way around.
Love you, Dad.