Needs: these are those bills that you absolutely must pay and are the things necessary for survival (rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payment, and utilities).
Wants: these include all the things you spend money on that are not absolutely essential (dinner and movies out, vacations, electronic gadgets, etc.)
Savings: this includes adding money to an emergency fund in a bank savings account, making IRA contributions to a mutual fund account, and investing in the stock market.
There are lots of different budgeting methods you can try to determine the best way to manage your money. But while budgeting guides might mention those methods or provide broad categories on which to focus, they don’t always make it easy to see how your budget will actually look.
Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.
As a general rule of thumb, we're taught to avoid spending more than we earn. Easier said than done, especially if you don't have a concrete plan in place. That's where a budget comes in. But creating a budget that you will actually stick to can prove to be challenging.
There's been a lot of talk about budgeting here at Get Rich Slowly. For instance, Kristin recently wrote about her adventures using the envelope system. I wrote about the reasons your budget might be failing.