A budget is the most fundamental and most effective financial management tool available to anyone. When used correctly, a budget can help you realize where you’re going and how you’re getting there financially. As our economy struggles, there has never been a better time to know how much money you have to spend, and where you are spending it.

Below are 5 reasons why living on a budget makes sense - and how it can help you achieve your financial dreams and goals that you’ve set for you and your family:

Provides insight into your financial situation: Personal budgeting allows you to know exactly how much money you have and the extent of your spending compared to your income. Furthermore, a budget is a self-education tool that shows you whether you are living within your means or whether you are living on borrowed funds and it will give you a clearer picture on how far along you are towards reaching your financial goals.

Provides extra money: A budget ensures there is actually money set aside for savings; to handle emergencies and unanticipated expenses. Once you have correctly prepared your budget, it will show you how much you need to save from your income to meet your expenses and set aside some funds for emergencies. It allows you to set financial goals, both for the amount and the timing.

Control your money: A budget will enable you to live within your means. With a budget, you have the tools to see exactly how your spending habits affect your finances and how much you have available to spend. Knowing how much you have available to spend can prevent you from over-extending yourself and going into debt. In short a budget helps you control of your money, instead of being controlled by your money.

Organize your finances: Creating a budget will help you organize your finances by automatically providing records of all your monetary transactions. A budget, even in its simplest form, will divide funds into categories of expenditures and savings. They can also provide the foundation for a simple filing system to organize bills, receipts, and financial statements.

Focus on common goals: If you are married, have a family, or share money with anyone, having a budget that you both create together can improve your relationship. A good budget is not just a spending plan it is a communication tool to discuss the priorities for where your money should be spent. Done right, a budget can help you and your family, identify and work towards a common financial goal.

Setting up a budget takes a little time, research, and adjustment-and once completed it will drastically simplify your life. The trick is to come up with a successful budget. Below are some suggestions you should keep in mind when coming up with a budget:

• Most importantly, internal motivation and a positive attitude!
• Pick categories that fit your personal situation and your spending habits not someone else’s
• Include enough categories to give you a meaningful picture of where your money goes and where you might be able to cut costs, but not so much detail that tracking is a chore that you’ll soon tire of.
• Inclusion of variable expenses that don’t occur on a monthly basis, such as auto maintenance, homeowners insurance, personal property taxes, service contracts, etc.
• Tracking cash expenses carefully and diligently. Cash spending is the biggest leak in most budgets and if not recorded correctly it will make your spending less than what it actually is.
• Identification of spending patterns you may not have been aware of when you weren’t tracking your spending.
• Treat money going into your savings account as you would a bill you owe.
• Last but not least, setting realistic financial goals and finding ways to meet them