Many people think that a budget is cliché. That it is just one of those things that the geeks and nerds like to do but which ultimately, is not helpful to anybody. That the only people who have any business writing a budget are the government. But what is the truth about a budget?
Well, the truth is, when you have a budget, you are better able and equipped to keep track of your money and more importantly, your spending. The truth is that, without a budget, money seems to be leaving as soon as it shows up and this, in a puff of smoke.
A budget is defined as a detailed and comprehensive break-down of one’s projected income against forthcoming expenses.
As with most resources, if we fail to manage our money, it will no doubt manage us. This is especially so on a personal level because we all have needs, wants and desires whose fulfillment requires us to have money in our pockets. Not just money though but dispensable money. This is what enables us to avoid living from hand to mouth.
Personal finance is important in that it defines the standard of life we live, the schools our children go to, the health care that we get and so on.
So, the first thing to take care of in the preparation of a budget is oneself. Pay yourself first. Put money aside that is just for you. The most effective way to do this is to set aside a regular amount of money every month. Ideally, this sum ought to be able to enable you to save effectively, give you back returns on your savings and enable you to invest.
An investment is anything that puts money in your pocket and preferably, without you having to work too much for it. This may be real estate/land, stocks and shares.
Having said that, the dilemma for most people is that it doesn’t seem to them like they even have enough to eat leave alone save and invest! This is a valid concern and unfortunately, not an uncommon one. The first goal for this particular individual’s budget therefore, would be to free up some cash. We usually find that as we begin to account for and keep track of our spending of every single coin that we get in, we are in a better position to spot loopholes which if sealed, would free up a sizeable chunk of our income.
This done, in order to realize our goal of financial freedom, we would go a step further and tighten it further so as to free up more money for the acquisition of assets, long term investment and so on. This would include measures such as, cooking as opposed to eating out, turning off the power when it is not in use to lower the utility bill, and so on.
We are our own best financial managers but we need information, sound advice and whenever even remotely possible, financial advisors. What we need to do is set our course. We need to figure out where we want to be financially in the next couple of years (5 is a good start) and then set out our road map to get us there. Only when we know where we are going do we have any hope of ever getting there.