A budget has dual purposes.
The first is to track what money has been spent. It is a perspective of the past, of what has happened. Budgeting starts with tracking where you are spending your money.
Once the budget has become a model for what has happened, it can be used as a tool to shape the future.
At this point, the budget becomes a financial model.
By looking at each of the buckets used for the budget, you can determine the value for money that you are getting from that bucket. Once you have the value associated, you can start to change how much money is assigned to each bucket to increase how much value is created in total.
As an example, let’s say eating out once a week is costing $200 a month and it creates 50 value points. The value points are just a way of comparing the value of different budget items. If eating out once every two weeks costs $100 and it creates 35 value points you now have $100 to add to a different bucket. Notice how the value didn’t decrease evenly with the money. Eating out creates value, but eating out every week starts to lose a little bit of the novelty so eating out every second week doesn’t contribute as much to your life happiness or meaning that forms the basis of the value.
If you use that $100 for going to the movies and that creates 40 value points your total value points are 75 (40 from movies and 35 from eating out) which is 25 points better than just eating out.
Going through your entire budget in this way can create a significant increase in the quality of your life.