If you want to control your spending and work toward your financial goals, you need a budget.

A personal or household budget is a summary that compares and tracks your income and expenses for a defined period, typically one month.1 While the word "budget" is often associated with restricted spending, a budget does not have to be restrictive to be effective.

A budget will show you how much money you expect to bring in, then compare that to your required expenses—such as rent and insurance—and your discretionary spending, such as entertainment or eating out. Instead of viewing a budget as a negative, you can view it as a tool for achieving your financial goals.

What a Budget Does

A written, monthly budget is a financial planning tool that allows you to plan how much you will spend or save each month. It also allows you to track your spending habits.

Though making a budget may not sound like the most exciting activity (and for some, it's downright scary), it's an important part of keeping your financial house in order. That's because budgets rely on balance. If you spend less in one area, you can spend more in another, save that money for a large purchase, build a "rainy day" fund, increase your savings, or invest in building wealth.

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