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.

But that is just a feeling. The reality is you control your reality. Who decides on how much money you spend each month? Who decides whether you should go back to school and improve your skill sets? Who decides on the type of car that you drive? Who decides when you are going to use your credit card? Who decides if you are going to pay more than the monthly minimum on your credit card to save on interest charges?

And while you are still contemplating to the answer above, we can also say that one fact of reality is that it is unpredictable. Emergencies occur, expenses pop up out of no where, and investment opportunities present themselves. Yes, even in this economy, there are investment opportunities – if you look around and are in a position to act.

And that ladies and gentlemen, is the rub. Are you in a financial position to seize investment opportunities? Can you pounce on deals while being prepared for life’s unpredictable events?

If the answer is “no”; if you feel like a victim of the economy, then it’s time to do something about it. And really, it is all up to you. We have already discussed the security blanket of insurance that covers death, health, disability and the like. The next step in financial empowerment is a cash reserve.

The financial experts say that you should have six to eight months your living expenses in cash put down. This will tide you over and give you peace of mind, especially in this current situation we are in.

Many will question – how can I save when I have so many bills, so many expenses that I have to meet? Well the simple answer – and most difficult implement – is to treat your saving goal like any of your other bills.

1. Review your spending habits – be ruthless and cut out what is simply not necessary.
2. Set up a salary deduction for 10% of your salary – out of sight, out of mind.
3. Direct your savings bill to an instrument that pays interest. Let the money that you a putting away earn something. It doesn’t make sense for your investment to simply sit there and not grow or earn a very low rate, especially given where interest rates are low.
4. Do not touch the money!!! If you are drawn down on it, how will it protect you later on?
5. Once you reach your savings goal, it is time to consider investing in opportunities for the long term.

When you are feeling helpless in the face of economic turmoil, it is easy to rationalize not saving. But that is really giving away your control to others. So, speak to your licensed financial advisor about ways to manage your funds so that you can build your emergency funds and manage the economic storm that we are in. Building a cash reserve is an important investment in your future.