Personal Finance 101–Balancing the Budget

A balanced budget is a budget where cash inflow matches the cash outflow. When we include our financial goals it is easy to overspend. To balance our budget we can either bring in more income or reduce expenses. It is usually much easier to reduce expenses then it is to work more.

Before deciding which expenses to reduce or eliminate it is important to understand “wants vs. needs”. A need is something required to survive. Food and water are examples of a need as they are needed in order to survive. We may not need lots of food and water but we do need some. Shelter is another example. We may not need a mansion but we do need something to protect us from the elements. A want is something we would like to have, but do not need it in order to survive. An example of a want is cable tv or hair products.