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Wednesday, January 11, 2012

How to create a successful budget

A successful budget grows wealth and manages debt within an organized framework that easily manipulates and apportions money for maximum financial benefit. The traits of a budget are what help make it successful by providing the basis with which the budget can operate and assist with appropriately managing the budgeter’s life.

Avoid overspending and underoptimizing money with a budget
Budgets allocate income within a plan

Capitalize


No budget can work without money to budget so a budget must be capitalized to be successful. Examples of sources for capitalizing a budget include income, capital gains, and interest earned from assets. Once a budget has been capitalized, the financial parameters within which the budget can operate are established.

Prioritize


Another trait of a successful budget is they are often prioritized. In other words, some expenditures and allocation of money may be more important than others. To determine which budget allotments should take priority, consider the affect on basic needs, cost of debt, reduction of debt, and amount of savings. For instance, a good budget accounts for basic short-term needs such as food while simultaneously preparing for longer term financial horizons.

Systematize


Systematization of a budget is a similar trait to prioritization except its focus is more on the functionality of the budget. For example, a successful budget might distribute money across a number of categorized goals such as retirement planning, emergency savings, high interest debt and so on.

Optimize


Optimization of money is a key trait of a successful budget because it allows that money to go as far as it can go. For example, if debt can be paid off within six months, and the money used to pay that debt is then re-allocated to savings for another six months will there be more savings over a course of one year than if an equal amount of debt payments and savings contributions had been made?

Accessorize 


A successful budget may also be accessorized, not necessarily by expensive financial software, but rather with useful budgeting techniques. Simple mathematical analysis of a budget is one such accessory. To illustrate, mathematical analysis is a useful if not essential accessory because it allows the budgeter to determine if one use of money has a more advantageous affect on net worth than another.

Since financial behavior also influences the effectiveness of a budget, how one behaves financially is also relevant. Some behavioral budgeting tips such as goal setting and planning are offerred in the video below.




Since finances and people’s lives are diverse, a budget can vary from simple to complex based on the financial needs of the individual or household. For example, an overly complicated budget may be simplified to better meet the objectives and requirements of a straightforward financial plan. Moreover, successful traits of budgets reflect tailored financial allocations that meet specific needs, and goals using comfortable and suitable methods.

 Image attribution: Stuart Miles. Standard royalty free license