Wall Street Journal. Personal Finance Workbook

CHAPTER 1 Budgeting Have you ever driven from Mount Sterling, Utah, to Dixville Notch, New Hampshire? Do you even know how to begin planning that route? If you're fairly fluent with the points on a compass, you could probably wind your way out of the Wasatch Mountains and head in the general direction of the East Coast, but you'd likely have a challenging time with the finer points of efficiently finding your way to Dixville Notch in the far northern tip of New Hampshire. A road map would offer immense utility. In many ways, budgeting is the roadmap to your finances. After all, moving in generally the right direction is fairly easy, but it doesn't necessarily get you to where you think you're going. You know you have to set aside enough money from each paycheck to pay the bills, and you know you're supposed to save something, if you can, for that proverbial rainy day. For a lot of people, that defines the extent of their budgetingspend what you need; save what you can. Imagine, though, having a benevolent guide to steer your path, to show you where you're spending. You'd have a better grasp of the costs that are necessary in your life, and those that are extraneous. Thus informed, you'd be prepared to make smarter decisions on spending and saving. That doesn't mean you'd be tethered to a budget that sapped the fun from your days and nights. Rather, you'd be empowered to decide for yourself what you want to spend your money on. It may be that you want to spend $3,000 on a vacation to Cairo instead of fund an individual retirement account, and that's fine. But your problem is you can't spare the cash because your expenses never leave anything but pocket change at the end of every month. With a plan, however, you might quickly find that many of the daily expenses you have in life aren't necessary, and that with a little jiggering you can alter your monthly spending so that you can actually save for what you want: that tripor the money to fund that IRA, or cover the down payment on a new car, or whatever want sits atop your wish list. The key to all of this and more is your budget. Of course, for many people the word budget immediately conjures up disagreeable images of a binding straightjacketa confining document that tells you what you can and can't spend. Budgets don't have to be that way. Budgets don't even have to be budgets. You can think of them, instead, as spending plans. Though it sounds like so much semantics, budgets and spending plans are different if only because of the psychological reaction they each illicit. Where budgets bespeak confinement, spending plans epitomize freedom because they allow you to make the decisions on how you want to spend or save your money. Here's why the psychological impact of a spending plan is relevant: Money is as much about psychology as it is about finance. How you think about money and the lessons you've learned about money through the yearsfrom parents, in particularshape the way you spend and save, often without your even realizing it. By using a different type of budgeting system, a spending plan, you regain control psychologically, often the trick many people need to better live within their means. Essentially, a spending plan works by matching your known income to your necessary expenses each month. Then, the plan allows you to resolve how you want to distribute any excess cash that remainsyour discretionary income. You can choose to pay down your credit card or car note, erasing your debt quicker. You can choose to put that money toward a vacatiOpdyke, Jeff D. is the author of 'Wall Street Journal. Personal Finance Workbook ', published 2006 under ISBN 9780307336019 and ISBN 0307336018.