Therefore, instead of worrying about the likely result, I suggested they focused on what they managed, and the right result would follow. They did, and it delighted me stages.

Likewise, a budget deals with future events, which you cannot predict or control. That’s why you must focus on what you can influence–the assumptions, which must be realistic.

Albeit you cannot predict the result, the immense learning you get during these three budget phases, should convict you to work with a budget: preparation, probabilities, and execution. The issue is not whether you will get the correct result by working with a budget. It is defining realistic assumptions and goals in advance, and adjusting your behavior as you progress to them.

Before examining the three phases, let’s understand the goal of a budget. Simply, it is to identify and cost resources needed to get to specific future goals.

Preparation

In the preparation phase, you have two objectives. First, you develop practical goals and assumptions. Second, you pinpoint opportunities and challenges that might affect your journey to achieve your goals. If one of your goals is to save enough for your education expenses, the preparation stage will help you see the sacrifices you might need to do this. Alternatively, it might show you that there should be no issues.

Here are specific lessons you could learn as you prepare the budget:

You will understand likely available resources, and choices, and so allocate funds and time in advance, in the most effective manner. Without this process, you will react to events, often with limited options.
You will get a holistic view of your financial health: what you have, and how that might affect what you would like to do. If you are in debt, this will constrain your action.
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You would know this early, and implement plans compatible with that state. If you by-passed this phase, you would move along, only to halt midway, because you ran out of funds.
If you are unhappy with your financial health, the starting point for the budget must show that state. This will be what you must work with. Therefore, you will need to decide before your journey, which plans or projects to accelerate, decelerate, or stop, to take you to your destination.
Considering available resources, you will understand the time you might need to reach your goals. At this early stage, you can choose to change priorities and resource allocation, if this time is unacceptable.
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Probability

Integral to the preparation phase, but a separate activity, is the need to look at different alternatives’ likelihood of success. With this, you can decide how much risk you are willing to accept before committing to specific goals. As well, you can decide between competing goals. You might have to choose between accelerating mortgage repayment, early car replacement, remodeling the bathroom, or a vacation.

Examining the likely effects before deciding, might comfort you as you decide. Besides, it will highlight areas for specific monitoring as you progress. This leads to the third key.

Execution

After you do the budget you should follow the plan to get to the identified goals.

However, as you enter the budget period, the budget assumptions might turn out to be dissimilar to yours. They won’t be wrong, just different: the gas price, food prices, clothing, school fees, and so on, might vary from what you estimated. That’s fine; the key is to monitor your progress on the path, and immediately you spot a change in assumption, you recalculate its effects and adjust your behavior.

If the gas price is higher, you must review transport plans to see if you can reduce the amount of driving. If you cannot, you must look at other areas for behavior adjustments. Maybe, you must defer buying clothes, and so on. The important point is that you must control your reaction to events. If you do not, you will follow events and borrow funds to do what you planned with the earlier, outdated assumptions.

Summary

You need to do each step to benefit. Doing one without three, or two but not one, will be sub optimal. Following these three budget stages is not a panacea for your financial health. However, the lessons you learn should help build your confidence, which in turn, should lower your anxiety about your finances.

Nevertheless, the key is to understand that if you choose to spend without a budget, events will lead you to debt. Essentially, they will control you.