This is the first article in a series exploring budgeting. I hope to expand this series over the coming weeks. Today I’ll be kinda talking about what is a budget and one of the major reasons I find for making one.

At any given time, do you know when the next bill is due, how much it is and if you’ve got enough to cover it? Do you know how much you spend on living expenses (lunch, etc) each month? If so you know how to budget; well done you are better than about 80% of the people I know. Most people don’tknow how to budget, so also don’t know how it can free up extra money and generally make you feel a bit happier.

So What is Budgeting?

Boring definition time:

Budg.et n

1. An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them: submitted the annual budget to Congress.
2. A systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period: A new car will not be part of our budget this year.
3. The total sum of money allocated for a particular purpose or period of time: a project with an annual budget of five million dollars.

Simply put, budgeting is planning your finances over a period of time. Knowing what is coming in/going out, and at what times is budgeting at the most basic level. The real power of budgeting lies in helping you achieve targets.

Finance is a Winding Road

Properly budgeting will help you get somewhere with the minimum of fuss and bother. It’s the financial equivalent of a road map, or SatNav if you want to get modern. With a good budget you can see where you’re ultimately going, and how to get there.

Lifehacker recently linked to 12 Reasons Budgeting can Improve Your Life on about.com. I agree with pretty much everything it says, but for me the chief point in the whole article is #5 (as it is for Lifehacker):

5. Following a realistic budget frees up spare cash so you can use your money on the things that really matter to you instead of frittering it away on things you don’t even remember buying.

My emphasis, by the way…

Don’t Make Yourself Feel Bad

Most budgets fail because their owners over-restrict themselves. For most people, budgets are about spending as little as possible. Preferably none. This is absolutely the wrong attitude to take. 99% of people will fail because they’re just not cut out for the life of a 16th century monk.

If I chose to I could reduce my weekly expenses (i.e. lunch) to just £5. So other than the usual monthly bills I could reduce myself to just £20. This would leave me with about £700 spare a month, but having a paper-thin ham sandwich for lunch wouldn’t exactly make me very happy. Instead I choose to spend a bit more on stuff like lunch and other luxuries like magazines and iTunes downloads to make life a bit more “rounded” and enjoyable.

A good budget always leaves you a sensible amount of money left over after bills and living expenses. What you do with that money is up to you. Personally, I (currently) advocate saving as much of it as possible, so long as you’re feeling happy and content. Of course you could take the opposite view and blow it on something ostentatious like oooh….. an Xbox 360 ;-) Whatever makes you (truly) happier.

And in that lies the kicker: a good budget should leave you feeling happier about your money and, by extension, yourself. A lot of financial advice is geared towards the future, but we shouldn’t ignore our short-term happiness in the mean time. That’s why over-restrictive budgets fail - we start feeling miserable, so look for a quick way to cheer ourselves up. The quickest way is normally to buy something we want, which can lead to problems if we’re not careful. If you’re feeling down about your money situation, try a sensible budget for a few months. You’ll learn to stop worrying so much and feel all the happier for it.

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