American Express

By now, you have assembled a pretty accurate picture of where you stand financially.You know what your assets and liabilities are, you have clearly prioritized your financial goals, and you have analyzed how your income matches up with your expenses. Using this information as a base, you now must project into the future to create a budget that works for you.

Often, the word budget sounds constricting, foreboding, and even a bit frightening.The word has a certain ring to it, vaguely resembling the word homework when you were in school.Instead, you should see a budget as your friend. It is the document that gives you control over your finances—in a way that lets you decide what is most and least important to you. A budget is an intensely personal plan; there is probably no one you know who has exactly the same priorities you have. If you find it important to include in your budget a lavish ski vacation to the Alps every winter, so be it—as long as the numbers tell you that you can afford it.

Once you become accustomed to budgeting, you will wonder how you got through all those years without one. A budget is a living, breathing document that expands or contracts as your circumstances change. Think of it as a road map, allowing you to know the direction you want to go, but giving you several options on how to get there. For example, you might be planning to buy a house in three years, and you are carefully putting aside money for a down payment. Then you are involved in a car accident that puts you out of work for six months. Your budget must change, causing your down payment plans to be put off for a while. But this does not mean you will never buy the house, just that your budget priorities have had to adapt to altered circumstances.