What Is A Budget?

A lot of people think of “budget” as a scary word. Sometimes it signals deprivation, scarcity, or a lack of freedom. Certainly a budget can impose these constraints in certain circumstances; however a budget doesn’t have to be draconian. I really like the definitions of the word “budget” provided by Merriam-Webster, especially this one:

“Budget: a plan used to decide the amount of money that can be spent and how it will be spent.”

A budget is a plan

At the simplest level, a budget is a plan for how much money you will spend on certain things over a certain period of time. Frugality and deprivation are not inherent in a budget. You could budget to spend $10,000 on a 10-day trip to Thailand. I wouldn’t call that frugal (I would call that awesome), but it’s still a budget.

A budget is a way of being intentional about money. It is a tool for thinking through what expenses will come up in the coming week or month or year and making decisions about a reasonable estimate of each expense. It can be an especially useful tool if you are trying to change your habits with regards to money, either to increase your savings, decrease your spending, or both. But this aspect of budgeting is not a requirement; it is really just a fringe benefit available to those for whom it is useful.

A budget should have contingency

If a budget is a plan, what do you do if your plans change? This is where having a “contingency” comes in. A contingency is a sort of slush fund for any budget overages. Budgets should be designed to have a bit of flexibility, and that is what a contingency provides. If you don’t account for change or unforeseen circumstances in a budget, you’re bound to be disappointed. Let’s face it, stuff happens. Your car might break down, you might have an unforeseen hospital expense, or you might unexpectedly have the opportunity of a lifetime to spend a month in Australia and you just can’t say no. Building in buffer will allow you to roll with life’s changes without constantly feeling like a failure for overshooting your budget.

The moral of the story

“Budget” doesn’t have to be a four letter word. A budget is just a plan. A budget need only be accountable to your personal goals. It is a way to allocate money in a manner that feels right for you. So figure out what you value, build a budget that matches, and just don’t forget about that contingency!

Do you budget? How do you go about budgeting?


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