What Is a Successful Budget?

When you create a budget, you're creating a road map for your financial success. A successful budget puts you in control of your money, so you're not scraping by as your pay period comes to a close. By holding the reigns of your finances, you will be better prepared for surprises and you'll be able to fulfill your goals more quickly.

Definition

Many people think of budgeting as cutting out all the things they love to do, which they consider "extras." However, a budget is really a plan for your money in which you may include the things you love. The difference is that with a budget, you plan for those things so that you're not in shock when you look at your bank account at the end of your pay period. While you may find that you need to cut back in certain areas, a successful budget allows you to enjoy your money more fully -- both now and in the future.

Budget Creation

Work backwards when creating your budget by identifying your goals. For some, buying a house is the most important goal, while others may be focused on paying off their debt. Listing your goals will help you to be more flexible in deciding where you need to cut back. After identifying your goals, commit to keeping track of everything you spend for a week. Either use your debit card for every transaction so that you have an electronic log of all your out-of-pocket expenses, or list everything in a notebook. At the end of the week, multiply the total by 4.3 for an estimate of what you spend each month. Add in your monthly expenses, including your mortgage, rent, utilities and other bills. Compare these totals with your income and then look at where you may be able to spend less so that you can reach your goals faster. For example, do you go out to eat dinner most nights? Consider going out only a few times each month as a special treat and you may be surprised by how much more money you have in your bank account.

Saving

A successful budget also allows you to save money for emergencies. Unexpected job loss, medical bills or family emergencies may be costly, but if you dedicate money into your savings account regularly, you will be better prepared. CNN Money senior editor Water Updegrave recommends dedicating at least 10 percent of your income to a savings account each month.

Debt

Successful budgeting also involves keeping your debt to a minimum. For those who have high balances on their credit cards, it's important to get those balances down to less than 30 percent of the credit limit. By budgeting, you will be able to allocate more money to your debt each month to get those balances down faster. Once you've paid off your debt, your budget will act as a guide so that you don't end up in such dire financial circumstances in the future where you need to rely on your credit cards.