Individual seeking financial stability and security need to equip themselves with good money management skills that would enable them manage their wallet in the most appropriate way.
By learning how to create and maintain a budget, you are putting yourself on a positive financial path that will last a lifetime.
The ability to create and stay committed to your budget is a great step in working toward a more financially sound future for you and your family.
Why you need a budget?
A budget shows how much money you have coming in and how those funds are spent. It gives you a sense of control over your money, and is one of the most important tools in building a successful financial future.
Regardless of your income class, every individual can benefit from taking a proactive approach to manage finances.
Budgeting improves your financial position by helping you (a) set new priorities to maximize your money’s potentials; (b) be cautious of unnecessary spending, and (c) focus on long-term goals and future needs.
How to create a budget?
Your current financial state is the first thing you have to bear in mind before creating a budget. This is because budgeting strategies vary across individuals with different financial position.
A student’s budget structure will be different from that of a working class or a retiree.
Dave Ramsey, America’s foremost personal finance coach, in his book titled “Financial Peace” outlined the basic steps you can adopt to organize their finances reasonably.
Set goals: There are two types of financial goals, short and long-term. Short-term goals focus on using your money today, while long-term goals deal with saving and spending for at least five years.
Both goals complement each another because how much you save today affects your current spending, and also how much you will have later in life.
You need to classify which goals, capture items of necessities (basic needs) and the ones that cover luxuries, this will enable you prioritize your financial goals accordingly.
Evaluate your income and expenditure: After determining your financial goals, you need to come up with a plan to have them achieved. Doing this requires you evaluating your income and expenses.
You start by itemizing your income sources (salary and other transitory income), and your planned expenses for a month.
You have to ensure that your income surpasses your expenses. If reverse is the case, it then means you will spend more than what is coming in, prompting the need for adjustment. If this happens, you can re-evaluate your expenses by reducing unnecessary ones.
Review your original budget as time goes by: Your initial budget should not be static. It is important you review it periodically to accommodate items or events that were not planned originally but cropped up as time goes by. For instance, if you get a promotion a work, you can elevate your spending and saving goals. On the other hand, a lay-off or fewer work hours mean you have to lower your spending to match your reduced income.
Commitment: Creating a budget is not enough, but commitment to it will help you achieve your financial goals. Although, sticking to a budget can be pretty difficult for individual who are not used to setting boundaries in their finances. Set realistic goals. Start slowly by building a plan that works for you.
