For some, budget is a loaded word. They think it tells them what they cannot do.
"If the word budget is a nasty word, don't use that word anymore," said Dorothy Rosen, a CPA and former Dollar Diva for Bankrate.com.
Experts say that a successful budget is the path to accumulating wealth, getting rid of debt and reaching financial security. It's critical to a person's financial future.
"It's an awareness document," said Howell Edwards of InCharge Institute in Orlando, Fla.
He said some people spend more time planning for their wedding or family vacation than they do for their financial future. But, he said, it should be viewed as a tool to help you have a successful and happy retirement.
"People won't budget unless they deem it to be important," Edwards said.
Brad Stroh, founder and CEO of Bills.com, said that when mapping out a budget, consumers should try to have fun with it.
"First, come up with personal goals. That's a fun thing to do," Stroh said.
Some fun goals to work toward include buying a car, taking a dream vacation, launching a home improvement project or paying off all student loans.
Ideally, you should create a framework for the budget and outline what goals you are trying to achieve with the financial plan.
To grasp what you need to save to reach those goals, you first need to know where all your money is going.
Stroh said that people need to build up a 30-day record of spending. To understand the cash coming in after taxes, get a total for mandatory spending such as mortgage, rent or car payments, and tabulate the total amount of daily splurges, such as buying coffee drinks and going to lunch.
Tracking spending is a wake-up call.
Edwards said that unless consumers put a pencil to it, they won't be aware of how those things can add up. Although the actual steps to creating a budget are fairly standard, a budget must be tailored to the individual.
"Without a budget, you tend to overlook those purchases that are frequent and repetitive," Edwards said.
After figuring out bills and debt, Stroh said, translate them into financial steps. Create small, short-term goals to help build toward bigger, long-term goals.
A short-term goal might be paying off a $500 credit-card bill, and a long-term goal might be taking a trip to Europe.
Once the cash flow has been established, Edwards suggested that people estimate an amount to spend for a particular category in the budget for where their expenditures fall.
Determine what the baseline amount is in each category. After a month, plug in actual expenses to see if it was what was predicted, then make adjustments from there.
"A budget is really dynamic. It has to be updated periodically," Edwards said.
For example, if gas prices change and the budget does not reflect that, it will not reflect that person's reality.
A budget helps point to where money is being spent. Once you understand that, it can be cut or trimmed to meet goals.
Stroh said there are many different, free online tools For help setting up a budget. He said people should not pay for computer programs to do it for them.
Rosen said there are three numbers that people need to put on their refrigerator -- that month's money coming in, money going out and their net worth, which is what people own subtracted by what they owe.
"You need to keep your eye on what's going on. If you do that, you can start accumulating wealth," Rosen said.
On the other side of the ledger, debt can slow the saving and wealth-building process.
Experts stress the importance of building an emergency fund for unexpected expenses to avoid derailing the budget plan.
Rosen suggested working to save up to six months' worth to pay bare-bones living expenses such as mortgage, utility and car payments, and food and gas expenses. She said that once the reserve is built up, a person can determine how much money he or she would feel comfortable having in the fund.
The key to making a budget work is knowing that it is an ongoing, dynamic process. Also, when budgets are goal-driven, they can be a great motivator.
"You can't set up a budget and expect it to take care of itself. It requires diligence," Edwards said.
"No pain, no gain" not only holds true for exercising. Stroh said there's no way around it; a person must put effort into the budget process to see its benefits.
"It's just like working out," he said. Steady work can lead to big results.
Distributed by Internet Broadcasting. This material may not be published, broadcast, rewritten or redistributed.
