Budgeting is an activity that some people actually enjoy. Most people, however, detest budgeting or are at most indifferent towards it. Whatever your feelings about the subject are, it’s important to at least understand the objective and the general principles.

Whether you’re in business or just managing your own personal finances, the goal of working to a budget is to increase wealth through careful planning. This is an important concept to grasp because there is a large misconception among many that budgeting is there just to make sure that we don’t spend more than what we earn. This is very important, but budgeting is much more than that. The goal of any business is to increase shareholder wealth. This can also be true for your own finances.

I’m not going to tell you how you should budget because it’s different for everyone, but I will explain what some people do and then how I approach the subject. Let’s first talk about traditional budgeting. This is the more tedious form of budgeting where you scrutinize different categories of your spending and budget certain amounts for each of these categories. For example, you might decide that you’ll allocate $300 per month for food and another $200 for entertainment and so on down the line. You then make sure that the total of all expenses are less than your income. Also, don’t forget to budget in savings and investing. If this is your style, then more power to you.

Now let me explain how I “budget”. I’m not a big fan of getting so detailed into planning exactly how much I’m going to spend in certain categories. Instead, I take a certain percentage of all income and put it towards charitable giving and into savings. I then take another percentage and allocate it for investing. After this, whatever is left is free to spend on everything else including living expenses and entertainment. Doing things this way simplifies the process and it ensures that my top priorities are always being met.

However you choose to budget, it needs to be something that you’re comfortable with and that you will stick with. It does no good to start, only to later give up on it because it’s too complicated or time consuming. So have a go at it…

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