Some of us are very smart with our personal budgeting, however many of us are unsure what a personal budget entails, or how to start budgeting our finances; according to a Gallup poll in 2013, two-thirds of American citizens do not budget.
Below are a few advantages of setting up a personal or household budget, and some tips when working through your budget from the team at Acorn Financial Services.
Advantages of budgeting
1. Control over cash flow (ie. your income and spending):
With a good budgeting system, you can be more informed on how much income you are bringing in, and how much expenditure is going out (ie. how much money you’re spending). When one is more informed, you’re armed with information that you can use to reduce overall household expenses and therefore increase your short and long-term savings. Budgeting helps you to make better decisions about how to spend your money.
2. Prepare for those unexpected expenses:
No matter how disciplined we can be, there will always be some unexpected expenses that crop up suddenly and out of the blue. A sudden illness, an accident, repairs to your car, fixing the leaky roof etc. are expenses that unfortunately cannot be put off until you can afford them. By having an effective household budget in place you can keep some money aside for such unexpected urgent and required expenses.
3. Avoid or minimise unnecessary spending:
Income streams are limited for most of us, so expenses have to be carefully planned to get the best mileage out of the income. If you feel that you are not saving as much as you should, or that cash is slipping out of your hands, budgeting can help you stem the flow of unnecessary expenses that you may think are wise at the time, but could come back to bite you in the long run. When you begin a personal budget you become aware of where each dollar of your money is going and when you attain this awareness, you can also find ways to reduce the expenses.
Tips for budgeting
1. Avoid withdrawing and spending cash:
If you are one of those who withdraw large amounts of cash for shopping and other expenses, it may be wise stop this practice. Use a debit card (or credit card if necessary) to ensure that all expenses are recorded. Keep some cash in hand for unforeseen expenses or for transactions that cannot be made in any other manner, but keep this amount fixed. It is easy to spend more when the money is in your hands. Like a smart personal budgeter once said, it can burn a hole in your pocket!
2. Categorise your expenses:
Make a list of different types of expenses. After setting some amount aside for essential expenses, put some amount aside for small luxuries. Create a long-term financial goal and start putting money away towards it. Long term goals can be anything from an expensive cruise vacation to purchasing a second home. Don’t forget to create a separate fund for emergencies.
3. Set realistic goals:
Money is a finite resource, so be realistic about what you can and cannot do with it. Many people make plans for 120% of their income, which means struggling to manage expenses, if not a gradual slip into debt. Know how much income you are generating and ensure your expenses stay within this limit. Remember not to stretch out the income too tightly. Leave some money for spontaneous fun or shopping to ensure that this amount is not siphoned off from the other expenses.
The best way to increase your income is to make money from your money. Put your money in some investments and let it grow. This is very much a part of proper budgeting as the goal is to achieve financial stability and security.
5. Keep evaluating the budget:
As and when your income and circumstances change, re-evaluate your budget. If you lose your job you can no longer afford to keep up the old budgeting plans. If you get an income raise you will need to change your budget plan to account for the extra income.Budget planning comes easily to some people. Others find that they have no clue about how to create a responsible and realistic budget without stressing themselves out. Consulting a financial planner is a good step to take when creating a budget. A planner has the experience and will be able to point out areas in which you can save. They will also be able to give you more information about suitable investments you can make. They will take into account your job, income, current lifestyle, assets and liabilities, and help you in making long-term budgeting decisions that will ensure your financial growth. If you feel you are unable to handle a budget, take your problems to a professional.
Acorn Financial Services
Information provided is in accordance with our disclaimer – users should ensure they read our disclaimer before continuing to use this site.
NEED A BUDGET?
Give the team at Acorn a call and organise a time to discuss your financial planning options, for free and with no obligations. With the help of Acorn Financial Services, we can plan and grow together.Contact Acorn
Share this Post