by Brad Homer
When you first set out to take control of your personal finances, you have to know how much money is coming in and where it is going. A budget is the way to do that. Knowing the basics of your personal income and expenses in some form of budget is a prerequisite to paying off debt, saving money and investing effectively. Many people are afraid of doing a budget for a variety reasons - but most of these reasons aren't rational when analyzed carefully. If you're struggling with your personal finances, a good budget may be all that stands between where you are now and the financial success you desire.
Your first good budget should list your income and expenses and when they occur during a month. As you refine this budget and seek to get it and your actual daily expenses to match, another key area of personal finance understanding becomes evident: the concept of cash flow. You may have enough income in a month to cover your expenses during that month, but if the bulk of your expenses appear at the beginning of each month and your income dates vary (if you get paid bi-weekly, for example) or lags behind the timing of your expenses, you could have trouble. A day-to-day cash flow spending plan is an excellent improvement over a standard monthly budget listing.
You can use a spreadsheet or budgeting software to plot out the flow of your finances. Or, you might do it the old school way and use envelopes, cash and slips of paper to organize and track your spending. Whatever you use, the basic concept is the same. Knowing the where and when of your income and expenses, a budget, is a critical first step towards personal finance mastery.
Millionaire 2020™ can help you on the road to good budgeting.