Harnessing The Power of Budgeting

It may be annoying, painful and boring, but budgeting may be the smartest money management decision you make. Why? Simply put, a budget gives you power. A budget allows you to prioritize expenses and organize finances to develop and implement a plan, based on predetermined goals, about how to spend your income. Do you feel like your money, or lack thereof, controls your life? Well, take control by making and sticking to a budget. Decide what you will spend on, and how much you are willing to spend.

How to Budget

Start with a clear picture of your finances.

• Write down each source of income and the dollar amount. Use one line for each. Adding them together will give you your Total Monthly Income.
• Keep all receipts – savings, deposits, food, rent, mortgage, ATM, shopping, utilities, etc. Write down the uses of the funds and the amounts, using one line for each. Together, they makeup your Total Monthly Expenditure.
• Subtract the Total Monthly Expenditure from the Total Monthly Income to calculate your monthly balance.

For the first timers, expect to be surprised at your spending habits. That’s just the picture. Now make the budget.

To develop your budget, ask yourself: Do I like this picture? Am I going to achieve my goals? If the answer is no, do something about it. Ask yourself: Am I satisfied with my monthly balance? A negative balance means you are living beyond your means. Aim for a positive balance, that is, a surplus. How? Try to eliminate or reduce categories of spending.

Having each as a line item show where you can readily make changes. This is why a budget is so empowering. Be realistic, but be willing to take hard decisions. When you get a positive balance, ask yourself: Do I want more money to save or invest? If so, look at those categories and amounts again. Always remember, the budget is to help you to meet your goals. Try to plan 3-5 years into the future.

Sticking to Your Budget

The benefit of budgeting comes from sticking to it.

• Start saving and pay without sacrificing savings for other expenditure.
• Save for purchases rather than using credit cards or higher purchase, which can result in un-budgeted interest expenses.
• Avoid cash and use ATM card for purchases. ATM cards provide receipts for purchases to help you monitor expenses. Plus without “spare cash” you are unlikely to buy “un-budgeted extras”.

Knowledge is power. A budget gives you the information to eliminate and reduce expenses, pay debts on time, and find more money to save and invest. Control your money. Don’t let money control you.