Sunday, 29 July 2007

The Foundation - Budgeting

There is a Chinese proverb that says "A journey of a thousand miles begins with one step". In your journey for financial security the most important foundation is a budget, thats the first step. You might downplay the significance of a budget in your quest to build wealth but its of ultra importance. Remember that "if you fail to plan, you plan to fail". How apt is that saying when applied to personal budgeting.

There is nothing philosophical about making a budget, a budget is a clear indication of your finances. It will show money coming in and will show money going out. It will also show money left if there is any after paying all your household bills. While researching for this article I came across some writers who thought that traditional methods of budgeting are outdated. Whatever your preference here is the bottom line: You need to budget. What budgets also do is put into perspective all your expenses such that when you are reviewing it you can see what importance you attach to some of your expenses.

Why budget?
• It reduces stress by planning and monitoring expenses
• Its reigns in your spending and borrowing
• It makes you take a step back and review your expenses
• It gets you on track to start saving

How to budget:

You will find a lot of budget planners on the internet here is a selection of some budget tools on the net:
British Bankers Association
Here is also one from the Financial Services Authority

Budgeting is not difficult, although it may take some concentration, and a bit of work. And you do not need to be a financial or maths genius to do it! The following tips will help:
• Be honest - Don't try to skip certain items, or underestimate your spending
• Be consistent and accurate - Making a budget involves keeping a regular check on what you are spending. Try to be consistent and accurate, and keep records of what you spend.
• Work out your income. Make sure you are taking your net income i.e income after tax. The pro-forma example shows you the sort of headings your income could come from
• List your regular commitments. This includes things like Council Tax, mortgage, rent, heating, insurance, etc.
• Add up what you are spending on normal day to day living expenses - this includes things like shopping for food, clothes, transport, entertainment, and so on.
• Record what you spend on occasional items - such as birthday and Christmas presents, repairs or decorations to your house or flat, holidays, etc. These items are spent on irregular occasions but it is helpful to put in an average monthly amount.
• Make sure that the income and the spending is for the same period. For example if the income is a monthly figure, the spending should be a monthly figure as well.
• Total your income and total your spending. If the spending is more than the income, it may mean that you need help with your finances.
• It is important to review your budget monthly and

2 comments:

I wish I knew it said...

Yes I agree with you. Budgeting is important.But whats your view on family budgeting?If one part wants to budget and save money while the other is not willing?

Izzy Mutanhaurwa said...

I think its quite difficult to live with such a partner. If you are serious about saving money, building wealth and prospering then you might need to sit down with your spouse to see the importance of budgeting. Better still ask her to read this blog.