Financial Freedom: Your Budget
How important is it to have a personal budget?
In the immortal words of “Stone Cold” Steve Austin: “hell yeah!”
Everyone should make us of a personal budget, and it will be one of the most important skills that you could teach to your children. A budget is simply a financial plan used to estimate – or forecast – total net income and expenses for the next 12 months.
There is absolutely no cost involved in drawing one up. Unless you have way more cash left over at the end of the month than expenses, then how else do you plan on achieving your financial objectives (other than using your credit card)?
It helps in identifying financial problems at a very early stage. It causes you to sit down and think about your financial future. It helps you to identify priorities. It helps you to identify areas where you’re simply ‘wasting’ money (on a personal note, I discovered that I was spending R1, 000 a month on ‘Wimpy’ mega coffees!)
So, what will you need in order to make your budget successful?
First things first, everyone in the family is going to have to play ball! This doesn’t mean that the head of the household makes all the decisions about when and where money will be spent. Rather, it means, that each member of the household should also have a say. Without buy in from everyone, you’re setting yourself up for failure. This, of course doesn’t mean that there shouldn’t be someone in charge of managing the budget.
Someone should also be in charge of administering the budget. This means that all till slips, invoices, and salary slips should be filed in sequence. It also helps to communicate the household objectives with all members of the family. That way no one will get upset when they aren’t allowed to spend money willy-nilly!
A budget also needs to be realistic. It doesn’t help planning for a family holiday, which will cost R20, 000 in six month’s time, when all you can afford to save right now is R2 000 a month for the next six months. The budget also needs to be flexible for when the car suddenly breaks down and needs a R5 000 repair job.
You also need to know the difference between forecasting and budgeting…
Forecasting has to do with deciding on whether the overseas holiday next year is possible or not. If it’s going to cost R 50 000, and you can only afford to save R2 000 a month, then next year is out. Maybe your timetable needs to be shifted another year out? Of course, if the holiday next year is feasible, then you need to budget over the coming 12 months in order to meet the R50 000 objective.
Understand the difference now?
How to prepare budget?
Firstly, it helps to know where your money is going currently.
Step one – estimate your anticipated income
The joint net salary members of all household members, annual bonuses and thirteenth cheques, interest earned from investments, capital earned from the sale of assets…
Step two – estimate your anticipated expenditure
Bond repayments, vehicle repayments, groceries, short and long-term insurance, water and lights accounts…
Step three – compare estimated income and expenditure
You will end up either with a surplus or a shortfall every month. Of course, there will be months where you anticipate a shortfall, and the budget allows you to make provision for this.
If you discover that you continuously have a shortfall, then you need to look at ways of reducing your debt. Here are some ways to do this:
Arrange to repay a loan over a longer period
Arrange a new loan with better terms
Spend less on eating out at restaurants
Defer new purchases for a couple of months (That new laptop can only get cheaper)
Sell some of your possessions
Lower your standard of living (it beats going into liquidation!) By downsizing your home or by selling the expensive car
There is no better time than right now to get your personal budget up and running. Good luck.
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