Dynamics of Budgeting

As individual, family or corporate organization, we have had to do a form of budgeting either once or twice.

 What then is the term BUDGETING? Budgeting is an estimate of income and expenditures for a period of time. Budget is futuristic; it is a workable plan of all income and expenditure for a specified future period. To have a good understanding of wealth and equally be wealthy, budgeting plays a crucial role. The formula for Wealth is:

                    Wealth= Time + Money.  

We must understand that to be financially independent our passive income must be greater than our expenses.

Reasons why you need a personal Budget:

1)      It is easier to become wealthy and be financially free with a personal budget: Personal Budget will open your consciousness to where your money go every month, the truth is most of us know we spend money but do not have a grip on what and what we spend on and before we know it we are broke and indebted in the process, eagerly waiting for the next pay cheque/salary as the case may be.

2)      It is easier to stay out of debt: With the aid of a Personal Budget you will avoid the regular pit fall of recurring debt traps.

3)      It is easier to get out of debt faster: Personal Budget brings your debt to your face and makes them a priority to be cleared, unlike when you do not have them written down. Sometimes we genuinely forget we owe some money, other times we pretend to forget *wink*

4)      It helps us save, especially targeted savings: Personal Budget will help you develop a saving culture especially targeted savings like buying or building a house, buying a car, getting a degree or any other capital projects.

5)      It helps with overcoming bad spending habits: Personal Budgeting will save you from bad spending habits, as it will starve the cravings with little or no allocation of funds to nourish such

6)      It helps you understand your ‘Financial self’ better: With Personal Budget you will know your true Financial Self in terms of your position or standings financially.

7)      It helps you achieve your personal financial goals: Financial goals are key drivers of Personal Budget, hence with a functional budget in place, achieving your financial goal is on track.

Basic Tips for Personal Finance Budget

·         You must decide to create a personal Budget and be ready to work with it. I must stress that creating a budget is simple compared to living with a budget. It takes discipline and consistency.

·         Another key thing in creating a budget is identifying what your financial goals are. Ask yourself basic questions and be true to yourself in giving the answers. Questions not limited to:

1)      Do I like my present financial conditions?

2)      What kind of financial future do I desire?

3)      With the way I am handling my finances can I achieve financial freedom?

4)      Do I really need to borrow, with my level of income?

5)      Am I living above my income and means?

6)      What kind of life/school do I want my children to go to?

·         It is important to do your budget in the same frequency as you are paid, if you get your salary on a monthly basis, make a monthly budget. And if you get it on a weekly or Bi-weekly basis do it as your pay comes in, and for my entrepreneurs, do it on a weekly basis or on the way you pay yourself.

·         Get your expenses penciled down, all your expenses’ (Fixed expense, Variable expenses and wants.)  Be true to write everything down.

·         Know all sources of your income. (for Salary earners it is simple, also add all other sources)

·         Know how much you owe, take time out to look at your short term middle term and long term loans.

·         Be ready to make adjustment along the way, and do not over burden yourself as this will make the budget/budgeting an unbearable task for you. When budgets are built to tight, it becomes unrealistic and in the long run, following true becomes difficult.

Don’t say because you want to save you now become a pauper, do not become a slave of money, rather rule money and use it wisely, the teaching and thought line of this blog is not to make us slaves to money but rather we rule money and command it effectively.

Next time we will look at more practical, hands on financial scenarios that can help us develop simple and complex budget. However we can refer and recommend our friends to the blog.

Remember we will be financially free, if we are financially well educated.