“Too many people spend money they haven’t earned, to buy things they
don’t want, to impress people that they don’t like.”
– Will Rogers
The difference between the rich and the poor is not so
much about how much they earn but in how they plan and spend their income. The
rich do this through a budget. What is budgeting? Budgeting is the process of
creating a plan on how to spend your money or income. In other words, a budget
is simply a spending plan. One notable thing about personal budgeting is that,
it helps you to balance your income with your expenses and avoid debt in the
short to medium term. It is much easier to slide into debt when you do not have
a strong budget. Following a budget or spending plan will also keep you
out of debt or help you work your way out of debt if you are currently in debt.In another
sense, budgeting ensures that you will always have enough money for the things
you need and the things that are important to you.
“Budgeting is not just for people who do not have enough
money. It is for everyone who wants to ensure that their money is enough.”
– Rosette Mugidde
Wamambe
What is Budget
Forecasting and Planning?
Budget forecasting enables you to create a financial plan for the
future, outlining your anticipated expenses. This process allows you to predict
which months may pose financial constraints and which ones will offer surplus
funds. Budget forecasting plays a crucial role as it extends your budgetary
considerations into the future, enabling you to estimate the amount of money
you can save for significant purposes such as vacations, purchasing a new
vehicle, acquiring your first home, undertaking home renovations, building an
emergency savings account, getting married, or preparing for retirement. By
employing a realistic budget to project your expenses for the year, you can
effectively engage in long-term financial planning. It is important to
recognize that budget forecasting is vital for maintaining sound financial
well-being.
Top of Form
Becoming rich is
hard. Staying broke is hard. Choose your hard.
–
Eric Worre
WHAT ARE THE
STEPS TO MAKING A GOOD BUDGET?
Below are some guidelines on how to draw a good budget.
Step 1: Set a clear goal for
your finances
How do you want your finances to look like in the next one year? How
much do you want to earn and spend at the end of every month? You must be able
to put figures to these. That serves as a guideline for you. Remember that goals
for your money will help you make smart spending choices. Goal setting is the
first requirement for becoming financially free.
Step 2: Identify all sources of
income and your expenses
This is a very important part of the budget. You must be able to
identify all the sources of income at your disposal. At the same time, you
should also be able to identify all the places where your money goes. You must
track all your expenses. It must be said that one of the reasons why many end
up in debt is because they are unable to tell where their money goes. While
they know how much they earn, they cannot tell exactly how they spend that
money. However, keeping a keen eye on your income and expenditure is the way to
go when you want to end all financial headaches in your life.
“If broke people are making
fun of your financial plan, you are on the right track.” – Unknown
Step 3: Prioritize your needs
over wants
Your ability to differentiate between your needs and wants can make a
great difference in your personal finances. At every point in time, there will
be things that are more urgent than others. You should always make this
distinction when planning your expenses. In budgeting, you must be able to
separate your emotions from the realities on the grounds. There is no need
insisting on buying something that you really do not need at the moment. It
also does not make sense buying things just to impress other people or trying
to look extraordinary when you cannot afford it. Money hates the emotions game!
Step 4: Design Your personal
spending plan.
Your spending plan is supposed to reflect how much you earn and not
otherwise. Do not copy others spending plan and implement it. You may do that,
when it helps to make your finances better. For example, you can copy the idea
of buying things in bulk instead of the ‘piece meal’ approach. It does not help
that way. Make sure that you are not spending more than you make. Balance your
budget to accommodate everything you need to pay for.
Life is a dance between making it happen and
letting it happen.
– Arianna Huffington
Step 5: Put your planning into action.
There are people who are very good with planning but will never put
such plans into action. That is not a good habit when it comes to personal
financial planning. When you plan to spend 20% of your monthly income on
clothing, you must stick to it, no matter what. You should not get emotional
and overspend in order to look good. Just do what you say you would do! You
must decide ahead of time what you will use each pay cheque for. Follow the
spending rule for each expense to the letter. I am assuming that by now, you
have decided how much to spend on housing, food, utilities, transportation,
dent repayment, etc.
Whether you think you can or think you can’t, you’re right. – Henry Ford
Step 6: Plan forseasonal expenditures
After you have drawn your budget, there will be things that will pop up
that you did not plan for. These are emergencies. Things like – funeral
contributions, school expenses, new shoes or some annual school anniversary
celebration do come up. What you need to do is to set money aside to pay for
these expenses so you can afford them without going into debt. Do not let these
take you by surprise.
Step 7: Keep improving your
game.
Personal financial planning takes time to perfect it, so please give
yourself time. You may not succeed perfectly in following your budget when you
start, but that is expected. What you need to do is to discipline yourself and
keep learning along the journey. Do not hesitate to consult a professional
where necessary.
The slightest
adjustments to your daily routines can dramatically alter the outcomes in your
life.
–
Darren Hardy
………………………………………………..
I hope you have enjoyed the reading and learnt a few lessons you can
apply immediately to your personal finance planning. Do not hesitate to contact
me should you require further assistance on this.
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