Your Route to your goals ...... Budgeting

A good budget will help you do all of the following: ................

 

7.    Pay Off High-Interest Debt
Any debt that costs more than you can earn from your investments after taxes should be paid off as quickly as possible. As a general rule, the only low-interest debt is mortgage debt or a student loan for those that have one. This is considered "intelligent debt" “I will come back to this notion” since your money can earn more for you if you invest it than what you'd save by paying off the loan. If your mortgage interest rate is 8%, your credit card rate is 20% and your investment return rate is 10%, pay off your credit card first, then invest anything remaining.

We will explore this further as we discuss in detail the different types of debt – and get to define what an asset is and what is a liability? Remind me Please.

8.    Invest direct from source or use automatic systems

Many of us argue that it is impossible to put money aside once it hits our bank accounts and can be accessed easily. Most are honest.

I therefore encourage that you use source deduction into an investment vehicle, have an arrangement with your employer to allow that your money is automatically invested before you receive your net. By having money deducted beforehand into your pension plan, or by setting up your own automatic monthly transfer from checking to savings, or having a set debit order into your investment account with the likes of African Alliance, your money will be out of sight and out of mind.

For long-term investments, put the money somewhere illiquid like in a fixed term unit trust so that so that you won't be tempted to steal from your future self.

For short-term, you'll need to keep the money accessible, but don't make it too accessible. For example, if your checking and savings accounts are at the same bank, it's all too easy to rapidly transfer money from your savings into your checking account. If you have these accounts at two different institutions, the transfer will take time, and that time delay may be enough to cause you to rethink your decision if you're trying to spend your savings on something you shouldn't. you could also park your funds in money market (a superior call account) which by definition while liquid and save, is an investment that can buy you the time needed to change your mind on your spend.

9.    Reduce Spending in a Particular Category

Remember how we said that budgeting isn't about deprivation, it's about putting your money to its highest and best purpose? One of your new budgeting goals might be to reduce your spending in a particular category, now that you know where your money is going, so you can put that money toward something that is a higher priority for you.
 

10.    Plan for Major Changes

As mentioned earlier, a budget lets you model in advance how a major purchase or life change will affect your finances. Instead of wondering if you can afford a house or panicking about whether you and your spouse can afford to live on one income while the other stays home to raise a child, you'll have the data you need to crunch the numbers. You'll find out before you make any change whether you can afford it and what sacrifices you might need to make.
 

11.     Experience the Freedom of Having Money in the Bank

By helping you sock away money each month, budgeting is an important tool for achieving financial freedom. The ultimate freedom, of course, is being able to retire, but along that winding road are opportunities for many rest stops if you have money in the bank. Those stops might include:

having a child

• starting your own business
• going back to school
• taking an extended vacation

Budgeting makes it easier to achieve all of these goals!

Your route to your goals .......continued

Achieve your goals with a budget – continued

 

As already stated, budgeting makes it easy to establish both short- and long-term goals and track your progress toward them. A good budget will help you do all of the following .......continued

 

5.    Start a Rainy Day Fund

To make sure that unforeseen expenses don't cause your goals to careen off track, build up some cash reserves. Three to six months' worth of expenses is a good cushion. This will help protect you from a sudden loss of income, an unexpected car repair bill or the like.

We all have those expenses that come for us unexpectedly. Maybe you develop a serious toothache and your dentist informs you that you'll need a root canal and a crown. While you may have dental cover through your medical aid, you're still going to have to fork over at least E500 unbudgeted for funds to get the work done. How can a budget help you handle an expense like this?

If you're new to budgeting and don't have any emergency savings yet, or if your savings have already been depleted by another recent emergency, your budget will help you determine what expenses you might be able to postpone or shift around to help you pay the unexpected bill.

For example, maybe like me, you pay your car insurance once a year and it's due next month, but you can opt to pay half now and half in six months instead to free up the cash to pay your dental bill. Or maybe your situation is tighter than that, but you can see that if you cut next month's grocery bill from E700 to E400 and go out to eat once instead of twice, you'll be able to start making a dent in your dental bill. Also, you may not have to pay the bill immediately. Payment of almost any emergency expense can be postponed by at least a couple of weeks by putting it on a credit card or asking the service provider to let you make two or three payments over several weeks or months. Of course, if you put the expense on your credit card, you should pay it in full when the bill is due if at all possible to avoid paying the exorbitant interest rates that a credit card attracts.

Your budget will also give you an idea of how long it will take you to replenish your depleted savings once you pay off your dental care.

6.    Get the Most Out of Your Money

Chances are you spend at least 40 hours working each week, and that doesn't include the time you spend getting ready, the time you're forced to be away from home because of commuting and lunch time, or the hours of free time that get lost because you're too tired from working all day to enjoy them. If you're going to dedicate that much of your life to earning a living, you owe it to yourself to make sure your money is going to the things that are most important to you.

A budget helps you track all your expenses - large and small. It lets you find out how much you spend on everything from coffee breaks to music downloads to fuel to clothes. If you discover that you're spending E1000 a month on clothes, charging these to the store cards knowing still that you cannot afford them, and that horrifies you because you haven't been able to afford a vacation in three years, you will know what to do. And because you know where your money is going and you'll continue to track it, you'll finally be able to save up for that vacation.

7.    Save for Fun Things, Too

If all your savings are going toward dreary activities like paying off debt and saving for unexpected car repairs and medical bills, your only incentive to save might be the fear of what will happen if you don't. Fear is a great motivator, but it is neither fun nor sustainable. Sooner rather than later you will get a brave spell and therein lies your doom, for you will start spending out of pocket (budget).

So even if you are indebted up to your eyeballs and are committed to getting out as quickly as possible, it is still very smart an initiative to plan some rewards into your program. You may think that a E1,000 vacation is setting you back, but consider what would happen if you didn't take that vacation. You might go on a spending binge one day to compensate for how deprived you've been feeling under an avalanche of bills, and not only might it cost more than the vacation would have, but you won't get the several days of relaxation that a vacation could have brought.

Yes we must budget for our vacations. And no, we do not have to wait until we have a lot of money to afford to take one – we make vacation time a priority, budget and save for it and allow ourselves to enjoy a moment in our life’s walk. That, I find becomes the one sure way to enhance the mind to stay focused enough o want to continue sticking to a budget.

Budgeting - Your route to attaining your goals

Achieve your goals with a budget – How?

Most people look at budget as a means to an end, as something that is set to frustrate them and not allow the flexibility to enjoy their money. That is I find, part of the larger problem with society, we do not embrace Just How Powerful a Tool a Budget Can be.

A budget that is structured correctly and its spent accounted for is by far the greatest tool that one can have to enable that we succeed in making money. It is the greatest Tool one will ever have at their disposal, and the best part is – You Set your own budget. No one can force it on you. It is truly dependent wholly on you.

To best manage your Spend, understand therefore also that budgeting can help you achieve your goals. An important part of effective budgeting is setting goals and using your budget to help you achieve them. Your goal might be as simple as saving up enough money for tickets to a soccer game like the E250 that we now need to pay to watch the Kings Cup (well, no one could have foreseen how hefty this one would have been), or as arrogant as retiring by 40 (I hear many say they want to retire at 40 – that is until they hit 35 and realize that they are not even half way to affording their lifestyle – let alone retirement). Or it might be both!

Budgeting makes it easy to establish both short- and long-term goals and track your progress toward them.

A good budget will help you do all of the following:

1.    Get Beyond the Next-Paycheck Mindset

When you're always thinking about the arrival of your next paycheck, that probably means you're burning up your current paycheck and spending the next one (whether by mentally accounting for where it will all go or by putting purchases on credit cards) before you even get it.

If this situation describes you, it's likely that you're living beyond your means and will need a very holistic change, first of your mind, then of your habits. Since no job is truly guaranteed, and thus neither is your next paycheck, making it a goal to fit your expenses into your current income is an important one. This way, even if you lose your job tomorrow, at worst you'll be starting at zero - you won't already be in a hole.

2.    Make short and long term projections

A budget will help you plan for short-term expenses, like your monthly bills, and mid-term expenses, like vacations, as well as long-term expenses, like buying a house, paying for a child's college education and putting money away for retirement. When you have a spreadsheet or notebook in front of you showing how much money you expect to make over the next few months (or years), how much of that money goes out every month and how much you have left to save each month, you'll always know when you need to cut back on spending, when you can afford to loosen the reins and how long it will take to save for major goals. And if you're not happy with the numbers, knowing what they are will help you take steps to improve your situation, whether that means focusing on paying off credit cards to increase your monthly cash flow, or getting a promotion or switching companies so you can make enough money to afford everything you need and want.

3.    Substitute short term items according to priority

For a short-term goal, such as being able to afford tickets to a soccer game next month, you may simply be able to substitute one expenditure for another. If you normally go out to eat, you can trade a meal for the game. If your budget is tighter than that, you may have to take a more drastic measure like cutting your grocery bill by eating lots of pap, beans and rice-based dishes and cutting back on more expensive items like meat and cheese.

Its your Budget - Own it!

Its all numbers on a glossy paper until you actually Stick to It

Like a New Year’s resolution that loses steam and dies as soon as it is made, for most people are always carried by the hype rather than the actual will and understanding of benefits to making any resolution and decision to become a lifestyle, a budget that is beautifully crafted but not followed will wither and die. No, it’s not the budget that will die, it is you the individual concerned that will soon be swimming in so much debt that you will find it hard to breath – let alone become that millionaire that we want you to be.

Many people have over the years come up with very good budgets. Still a few people are rich. Why is that?

The difference lies in each our abilities to define what we want to do, who we are in relation to what we want to do, and the will to actually do that which we set out to do.

Own It

So now you’ve made your budget - the next step is to track your budget over time, and in that way make sure that you are sticking to it. The only way to succeed in budgeting is if you Own your Budget!

If you find that you aren't able to follow your budget successfully, it may mean that your plan isn't flexible enough. Go back to your budget, review each entry and understand your allocation to each. Before spending think through the following;

What are your financial goals and priorities (will including such item in your budget help you reach your goals?). Consider the alternative and ask the following questions

•          Can I do without?

•          Can I continue to use what I already have?

•          Can I make it instead of buying it?

•          Can I borrow someone else's?

•          Can I substitute with something less expensive?

•          Or can I rent a few days instead of buying?

•          Is it a need or a want? – should I buy it?

These are some of the questions you need to ask yourself before you decide for certain that an item is a must have in your budget. Ask the questions, and then revisit your numbers, adjust a few times until you find the balance that works for you. If you still decide to include it and in that case acquire it, before you set out to pay for it make the comparisons, check pricing and ensure that you are buying at the right price. Understand that even small savings can add up on repeated purchases.

BE PATIENT WITH YOURSELF. KNOW YOUR LIMITS.

TO CHANGE A HABIT DOESN’T TAKE AN OVERNIGHT DECISION SO DON’T EXPECT MIRACLES TO HAPPEN OVERNIGHT......

Comprehensive Sample Budget

Starting Balance	500						Total
Total Income	0	0	0	0	0	0
Total Expenses	0	0	0	0	0	0
NET (Inc - Expe)	0	0	0	0	0	0
End Balance	500	5000	500	500	500	500
	Jan	Feb	Mar	Apr	May	Jun - Dec	Total
INCOME
Wages
Interest Income
Dividends
Gifts Received
Other
Total INCOME	0	0	0	0	0	0
EXPENSES
HOME EXPENSES
Mortgage/Rent
Home/ house Insurance
Electricity and water
Phone (mobile and fixed)
DSTV
Internet connectivity
Furnishings/Appliances
Garden boy and maid
Maintenance/Supplies
Other
Total HOME EXPENSES	0	0	0	0	0	0
TRANSPORTATION
Vehicle Payments
Insurance
Fuel
Bus/Taxi Fare
Repairs
Other
Total TRANSPORT	0	0	0	0	0	0
HEALTH
Medical Aid
Doctor/Dentist
Medicine/Drugs
Life Insurance
Other
Total HEALTH	0	0	0	0	0	0
CHARITY/GIFTS
Gifts Given
Charitable Donations
Religious Donations
Other
Total CHARITY/GIFTS	0	0	0	0	0	0
DAILY EXPENSES
Groceries
Personal Supplies
Clothing
Dining
Salon
Other
Total DAILY	0	0	0	0	0	0
ENTERTAINMENT
Videos/DVDs
Music and games
Movies/Theater
Books
Hobbies
Vacation/Travel
Other
Total ENTERTAINMENT	0	0	0	0	0	0
SAVINGS
Emergency Fund
Transfer to Savings
Investments
Education
Other
Total SAVINGS	0	0	0	0	0	0
OBLIGATIONS
Other Loan (personal)
Credit Card Debt
Alimony/Child Support
Local Taxes
Bank charges
Other
Total OBLIGATIONS	0	0	0	0	0	0