To many people the word “budgeting” smacks of being an unpleasant, tedious activity. Think of a budget, rather as a tool to give you a clear financial spending plan that will help you to manage your money and help you move closer towards your goals.
Are you spending more than you earn? Are your finances out of control? We all have income, and we all have expenses, and often we don’t know where the money goes. A budget will help you take control of your money by helping you to keep track of your spending. Here are some points to note when preparing a monthly personal budget.
Calculate exactly how much income you have coming in. We all tend to have a good idea of our main sources of income; monthly salaries, passive income such as rent and dividends, other income including, commissions, and bonuses that we might earn from time to time.
On the other hand, most of us tend to struggle when it comes to keeping track of our expenses. It is easy to monitor the regular expenses such as rent, insurance and utility bills, but it is the cash, those daily “hidden” expenses that you cannot even remember spending that are more difficult to track.
Chart all your daily spending for a month or two. Record every expense, from buying your daily newspapers, to picking up an appliance at the mall, to eating out, or filling your car tank; this is the only way you can get a true picture of what you are actually doing with your money and have a better chance of cutting back on excesses and adjusting your spending patterns if need be.
Ideally, your expenses should not exceed say 60 to 70 percent of your income; but for most individuals and families, this is a real challenge and many feel that it is impossible to save from little or nothing. It is sometimes argued, for example, that low income earners would be better off using any extra funds to pay down their debt as opposed to trying to save people on low incomes would be better using any spare money to pay down their debt rather than saving.
Others argue that there is little point setting money aside at the expense of adversely affecting the basic standard of living. In spite of this, there is evidence that indicates that there are significant benefits, both material and psychological that saving even for the lowest income earners, far outweigh other concerns. It is important to note that even small amounts set aside with consistency, discipline and time, will grow into something worthwhile.
The hardest part of budgeting is sticking to the budget. Many people find setting up their budget easy, but fail when it comes to living within it. Remember, you are the only one that can maintain your budget, so it should be tailored to your needs, your values and your priorities.
Start by setting specific goals for yourself such as buying a car, making a down payment on a property, or taking a family vacation. Focusing on set, achievable goals is an incentive to work towards them.
In preparing a budget it is important to keep things simple and straightforward. If your budget is too complicated you will quickly abandon it. There are several budgeting tools ranging from simple worksheets that can be downloaded free of charge from the internet and customised with spending categories appropriate to your lifestyle, to more sophisticated personal finance software such as Quicken. The key is to find the right tool that works for you.
Budgeting is one of the most effective tools to help in the quest for financial security. The earlier you start the better; for young people who start to keep a budget, it is a habit that will serve them well throughout their lives.
Take a little time out to set up a budget and try to follow it through. Growing savings, reducing your debt and beginning to invest can help you down the road to long term financial security. This can all start by simply creating a budget and sticking to it.
Nimi Akinkugbe
