The reason for creating a budget is to maximize the amount of happiness and fulfillment in your life.
There are two key questions when creating your budget.
The first question is: Am I bringing in more money than I am spending? In creating your budget you want to make sure more money is coming in than going out. This will give a buffer for unexpected events.
When determining your spending make sure you are including all the money that is going out including items that only come up infrequently like taxes, Christmas presents, car repairs etcetera. It is critical that your budget will cover all your expenses.
The second question is: How much happiness or fulfillment will this expense bring into my life? This question sometimes has to be phrased as; How much happiness or fulfillment will I lose if I don’t make this payment. Many non-discretionary expenses will require the second version of the question. It may not feel like paying your mortgage is going to create as much happiness as the gadget you want. But not paying the mortgage and the ramification of not paying will cause you to lose more happiness than what the gadget gained you.
When you go through every expense based on these questions you end up with a budget that maximizes the happiness and fulfillment you will get in life.
This mindset will then become prevalent in your life. Every time you go to spend money you will ask yourself this question. Ultimately you will seek out purchases that will increase your happiness both for the short term and for the long term.