Gone are the days when our grandparents used to budget in a literal sense; with large brown envelopes, permanent markers and paper clips. Carefully labelling the envelope with the relevant category and planned expenditure, say groceries of R500 per week, they would slip the budgeted cash amount into the envelope at the beginning of each month.
With this visual monitoring system for monthly expenses, it was easy to see potential problems as the month passed by. The envelope emptied of its cash reserves and filled instead with receipts and records.
It was blatantly obvious when the money supply for the household was inadequate because the grocery envelope, for example, already sat empty by the 17th of the month.
Today we tend to do things a little differently. In fact, most of us either do not maintain a budget at all, or we don’t know the first thing about where to begin. Overspending? Living beyond of our means? Isn’t that what credit cards are for?
Sound financial advice, however, advocates another approach. Monthly budgeting is one of the first steps towards ensuring lifelong financial success and independence.
This does not necessarily imply the visual budgeting method of the technologically-deprived older generations, but it certainly needs a measured and purposeful approach to understanding your personal financial position from month to month.
Here are 10 tips for creating, maintaining and adjusting a monthly budget, which allows you to develop wiser spending habits and save money:
Know Your Income
Unless you control your money, making more of it won’t help. You will just have bigger payments. – Unknown Budgeting is a skill you will never regret mastering.
A plan is not a rule to live by, but a set of boundaries within which to remain free. Think of it as a liberation and embrace the success you are sure to find.
Learn to separate fixed and variable expenses. Fixed expenses must be paid first, no matter what. Variable expenses are often still necessary, but may be pushed to the bottom of the priority list when times are tight.
The disposable income is the figure you work with after savings and non-negotiable expenses have been taken into account. Also separate essential expenses, like groceries and rent, from nice-to-have expenses, like luxury items and little extras. This will create some breathing room for rainy days.
Plan for Emergencies
The old adage applies: Failing to plan is planning to fail. Emergencies happen and they are always unforeseen. Ensure you are putting away enough to cover potential emergencies, or that you have an insurance plan worth its weight in gold.
Plan for Saving
Saving should never be done after spending. To save money, do it first. Have an exact amount (or percentage) in mind and maintain it diligently every month.
Harold Pollack advises saving at least 20% of your income each month to see a lasting improvement in future financial success.
Set Limits & Stick to Them
Who doesn’t like to find a bargain when you least expect it? But was the item on sale part of your planned expenditure this month, or is it something you would never normally buy? Is it something you needed or a temptation?
The guidelines are simple: for flexible spending, know exactly which items you are willing to trade off. For example, if you buy that new bicycle helmet today, you know you will not be buying the new pair of running shoes until next year. Whether or not it’s a good trade-off depends on your priorities.
Do the Calculations
Don’t “guess-timate” when it comes to spending. Take time in the first few months to sit down and calculate your exact spending. Use slips, your credit card statements, bank statements and a budgeting application or spreadsheet.
After a few months, patterns will start to emerge and problems will become more obvious. Do you always budget too little in a certain area?
Are you spending large amounts on things you haven’t accounted for and what impact will this have on your ability to save?
happiness. Sometimes, you need to throw the budget out of the window and do what you need to do. Be sure to understand the consequences of these choices, however, and adjust the following months where needed.
Find someone you trust to keep you accountable in your spending and saving habits. It should be a person who is honest about helping you and not in it for personal gain. Meet regularly and remain honest with them about your financial health.
As you develop a deeper understanding of your personal financial position, there will come a time to up your game. Life is not a stagnant pool, but a winding river, always moving forward and finding new paths.
Your financial position can be a river if you let it, taking you on new adventures as you master control and use money as the tool it was meant to be: to take you forward.
How could you do things differently? How could you save money in a more efficient way? Could you change your debt position to achieve where you want to be in five years?
Master the Money
Use the money, don’t let it rule you. Money is a tool, not an endgame. It opens up choices and alters dreams into reality.
It empowers and uplifts those who master it and grants financial freedom as a reward for diligence.
Unless you control your money, making more of it won’t help. You will just have bigger payments. – Unknown
Budgeting is a skill you will never regret mastering. A plan is not a rule to live by, but a set of boundaries within which to remain free. Think of it as a liberation and embrace the success you are sure to find.