I make a couple of thousands every month and at the end of the month I have to figure out how not to get broke before the next alert. This is typically the story of most income earners; what to do with the limited resources at their disposal. This is the dilemma!
Money is the language of survival and our lives revolve around making money. The very reason we go out each day is so as to guarantee some cash at the end of the day or month. But regardless, the reality is no matter how hard we work, money is an insatiable desire; you really can’t get enough and so also your expenses, they won’t stop climbing up. So with more money, you get more needs that need to be satisfied. The dilemma is really how do you keep a lid on these rising needs and maximize your limited resource. The answer lies in budgeting.
Budgeting is not about creating more money but simply about realigning needs, and matching them with means on a scale of preference. The driving idea is maximizing the limited resource such that it can accommodate your pay outs. It is ensuring you keep the money suckers in check so that you can cater for the future in the form of savings and you don’t end up being broke.
There is no magic to budgeting. It simply takes discipline and not just the drafting of a guide for allocating your resources because even with a plan you can still fall prey to spending beyond your source. So you really need to be disciplined, it is the act of discipline you translate into the act of budgeting.
So how do you budget?
Income identification comes first. Identifying your sources gives you a clear idea of what you have in the pool. Your sources must be guaranteed and not based on speculation like my fellow accountants would say; never anticipate income but budget for every possible expense. Identifying your guaranteed sources of income ensures the budget does not fail structurally and this gives it the hope of survival.
Define your expenses. Many at times, people often say that they can’t really tell all their expenses; rather they prefer to spend and budget on the go like prepaid cards. Well that’s just plain stupid. You need to know where your money is going ahead of time, even if you have so much, it does make sense to plan ahead of time.
Classify your expenses. Prioritize your expenses in the order of urgency, necessity and importance. This gives you clarity and helps you focus not just your money but your efforts in ensuring bills are paid for. The scale of preference should be in the order of urgency, necessity (i.e. feeding, utilities), importance (i.e. welfare of dependants, tithes and offerings (if you are religious)). Any expense that doesn’t fit the description is simply not worth it and should be evaluated based on the value created.
Define your savings plan. You have to save a share of the cake for later. It’s a culture you must build and leave with. Never spend all you have, its wisdom. Save for tomorrow. How much? Well that’s left to you. I strongly believe at least 20% of your earnings (don’t ask me why).
Define your investment plan. This is the other kind of savings. I call it target savings, saving towards a goal. Depending on whatever long term goal you have, you need to save towards it. Work out the time period and how much you need to save each month to meet that goal and start saving.
Next, sum up both sides of the table; Income matched against expense. If you have excess (i.e. income is more that expenses), save the excess or place it in your investment plan which ever offers better returns. If your expense is more than your income; well you need to head back to the drawing board, your options are you either get more guaranteed sources of income to cover the shortfall or you simply have to scale down your expenses to match the income.
Control! Your budget is not just a plan it is a control measure so stick to it with minimal deviation but never be too rigid. If uncertainties arise that jeopardize the plan or more sources emerge, head back to the drawing board and make necessary adjustments. Be adaptable!
Lastly, never budget in the cloud (i.e. in your mind) put it down in print; it is easier to follow through that way.
We all need to budget just as we need money. Make it a culture and you will be able to put your personal finances in order and also be able to at least sleep well each night with little worries. So start budgeting now! I mean now!
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