Budgeting is a crucial part of any financial success and is a necessary skill for survival in today’s economy. No company can be successful without a financial strategy and likewise no person can be financially secure without a budget.
A budget is a plan of your (predicted) future incomes and expenses. This plan will help you see where all your money is going and it will help you effectively plan your short and long term spending decisions. Budget planning in itself is not a difficult task; all that is required is a logical and methodical approach.
The best budgets are simple and prudent, taking into account emergencies and unexpected expenses. It is worthwhile doing the budget in a spreadsheet program such as excel as the final budget is easier to set out and calculate and can be printed multiple times for each member of the family.
To start a budget first get together all your monthly accounts such as:
The electricity bill
The gas bill
Rates and taxes
Mortgage repayments
School Fees
And any other expenses that do not change from month to month
These are your fixed expenses.
Then collect the receipts for things like:
Food and beverages
Clothing
Consumables (light bulbs, detergent, etc)
Gasoline
These are your variable expenses as they change from month to month.
Add up the fixed and variable expenses, this figure covers your expected expenses for the next month.
Now for the prudent part, think back on all the times that you have needed money unexpectedly for things like car repairs, emergency medical bills etc. These expenses must also form part of your budget. A good rule is to increase your expected expenses by 10-15 percent to cover all of those sudden emergencies, so that you’re always on the safe side.
Now subtract this figure from your net salary (the amount you receive after tax and deductions). The left over amount is the amount of money that you can spend on your “wants” since all your needs have been covered.
A good option for any spare money is to invest it. This will help you beat inflation and the constantly rising cost of living. Fixed deposits are good for small investors as they offer reasonable returns with virtually zero risk. For instance if you were to invest $200 a month for 10 years at a rate of 9 percent at the end of the 10 years you will have $38,702 compared with $24,000 if you had just placed the money in a savings account. To find out about fixed deposits inquire at your local bank.
Now that you have your budget it is vital that you stick to it. Sticking to a budget requires self discipline. This does not mean that you cannot enjoy your money, on the contrary, a budget will help you plan your expenses in such a way that you will have more money to spend on what you love.
To effectively manage your budget you will have to occasionally review your financial situation and adjust your budget to accommodate new monthly expenses or changes in old ones. Remember that a budget is a flexible guideline on how to spend your money, so when your finances change your budget should reflect that.
Some tips when it comes to sticking your budget:
Place your monthly budget on your fridge, that way you will always be reminded of financial situation.
Update your budget as the month progresses (once a week or after every shopping trip) and adjust your spending accordingly.
Never buy on an impulse, rather plan the expense.
Try to avoid buying on credit as the interest charged on your purchases will cost you in the following months.
Try to repay all your home loans and mortgages earlier than stipulated in the loan or mortgage agreement since the longer the loan is outstanding the more interest is paid on it.
All said and done budgeting is not difficult and creating well planned budget will help secure your financial future. Once you have a sound budget you will feel more confident when you go shopping and you will never loose sleep over your finances again.