The world of finance and investments is notorious for its extensive use of jargon. With a goal of enhancing financial literacy and making the world of money more transparent, we are committing to a “monthly jargon” post that focuses on debunking various financial terms that are continuously used sans explanation. This month, we are addressing the oversimplified and unfairly dreaded term “budget.”
When we use the word “budget,” we are referring to a goal based on our revenue and expenses, typically over a specified period of time, that we aim to keep a gauge on to ensure we are sticking to our set parameters. Put frankly, a budget is an estimate of income and expenses for a particular period of time. Any entity that involves making and spending money can implement a budget. A budget can apply to individual finances, but can also involve a larger group, such as a family, team, business, government, organization, country, etc. – the list could go on! No matter who is involved and committed to the budget, the overall meaning, and characteristics of the term remain the same. We’re going to focus on personal budgets in this jargon debrief to ensure our explanation is most applicable to you.
Now, let’s break down this term a bit to really understand what we mean when we throw the word “budget” into our next conversation about our finances. A budget is utilized to achieve some sort of financial goal, whether that be saving for a home, a car, your next vacation, or simply trying to spend less money on the daily essentials like groceries and food. One of the main misconceptions of a budget is that it is only intended for situations in which money is tight; however, this could not be further from the truth! Every individual, no matter how large the paycheck or bank account, can benefit from budgeting. A budget is arguably more important than the actual cash you have in your bank account because your cash flow, in other words, your personal budget, is what allows you to pay for your day-to-day life and costs. Having a gauge and handle on your money empowers you to ensure your hard-earned cash is being utilized in the best way possible.
All in all, a budget is essentially a financial plan for a defined period of time. Creating a budget and following one enhances the effectiveness and success of any goal that involves money. Personal budgets are extremely useful and beneficial when it comes to managing and tracking one’s finances over both the short and long term. Because of these many benefits and positives of utilizing a budget, no matter how much money someone is pulling in, everyone can benefit from some aspect of tracking and molding his or her finances. To put it simply: The importance of budgeting cannot be overstated! Everything in life costs money, and a budget helps us effectively monitor all aspects and parameters of our cash flows along the way.