How to Budget Your Money

A budget is an estimate of future income and expenses. A budget is a tool for controlling costs and helping you make good economic decisions. The main goal of a budget is to find your income and expenses and see if they are similar. This way, you have a much better idea of what you are able to spend.

If you have an income that is less than your expenses, you have a deficit. That means you use more money than you have. If your budget shows that you have more expenses than income, you have to cut your expenses, which means you have to spend less money. It could also mean that you need to work more, or get a job that pays better.

If your budget shows that your income is greater than your expenses, you have a surplus. This presents two choices: You can either spend more money, or save more money.

In this case it will always be a good idea to save at least some of the money in something that is low risk. There are many different ways to save. You can put your money in a bank account, or you can invest in funds or stocks. You can also use it to invest in an idea that you have and become a small business owner. There are loads of opportunities.

Example 1

After a rocky start as a paralegal, Mike Ross decides to go to law school to become a lawyer. He makes a budget for how he will survive on his own. He has the following income and expenses:

Excel spreadsheet showing Mike’s income and expenses

Make a monthly budget for Mike. How would you use the leftover money?

Excel spreadsheet showing a budget for Mike

Below you can see the budget with the Excel formulas:

Excel spreadsheet showing the formulas used when calculating the budget above

From the budget you can see that Mike will have $1400 left over each month.

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