Back To Budgeting

Budgeting

Do you know how much money you spent last week? What are your monthly expenses? How much have you set aside for savings? Having a budget will provide the answers to these questions and is a great tool for financial success. 

A budget supports you with achieving your financial goals by:

  • helping you to track your income and expenses, telling you how much money you earn and exactly how you spend it, 
  • identifying areas where you may be overspending so you can cut back, and
  • helping you make the most of the money you earn.

How to Create a Budget

Not quite sure where to begin? Here are some steps you can follow to create your budget.

  1. Decide on your Financial Goal

Your budget will support you with achieving your financial goal, so be clear about what this goal is. Are you saving for your annual vacation? Do you want to purchase a new refrigerator in 6 months? What will it cost? When do you want to achieve it? Write it down and be as specific as possible.

  1. Choose the Right Tool

When it comes to creating your budget, the right tool is important. There are many free online resources to help you keep track of your money. VM’s free budgeting tool is one such resource. A simple Excel spreadsheet is another option, or you may prefer good old pencil and paper to write it down. The important thing is to choose what’s most comfortable for you. 

  1. Write it Down

These are some of the things you should include in your budget.

  • Your total income (job + other sources)
  • Your savings + investments
  • Your fixed expenses – mortgage/rent, car loan
  • Your flexible expenses – entertainment, food, utilities, transportation 
  1. Use the 50/20/30 Rule

This rule recommends that you allocate your budget as follows:

50% to Needs: These are things that you can’t live without, such as Rent, Food/Groceries, and Utilities like water and electricity.

30% to Wants: Your wants are the things you desire but can live without. Some examples are dining out, designer clothing, and digital streaming services like Netflix.

20% to Financial Goals: This refers to all your savings and investments, as well as debt payments.

Sticking to Your Budget

You may find it challenging to stick to your budget, especially if budgeting is new to you. Here are some suggestions to make sure you stay on track.

  • Remind yourself of your goal and how it will improve your life. For instance, take a picture of the car you wish to purchase and put it someplace you will easily see it, or save it as the wallpaper on your phone.
  • Get an accountability partner. Tell someone responsible about the goal you want to achieve and how they can support you with sticking to your budget.
  • Put safeguards in place, such as salary deductions to ensure your savings come out of your account before you begin spending.
  • Celebrate your milestones. When you achieve a goal, no matter how small, find a way to celebrate it. This will make the feeling of being rewarded, one you look forward to, and will also encourage you to save as saving will feel less like a burden and more like a rewarding experience. 
  • Review your budget at intervals and make any adjustments that will help you stay on the path to achieving your goal.

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The novel Coronavirus has brought anxiety and unpredictability to economies worldwide. During this period, it is vital to practice personal budgeting as a mechanism to maneuver through the uncertainties caused by COVID -19. A budget enables you to set your savings target for the month, track your spending, prioritise your expenses and eliminate or reduce expenses which may be unnecessary. It’s a really important tool because it helps you to ensure that your expenses do not exceed your income.

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