A Personal Financial Budget is “A Plan For Your Money”
Before I discuss personal budgets, I’d like to take a moment to share the importance of “Planning”. Planning is the process of developing strategies to achieve desired objectives and to solve problems. Without proper planning it is impossible to improve performance and to maintain control. If you want to be successful you will need to plan regularly.
What most of us do not realise is that when we wake up, we create a mental plan of the day’s activities without realising or being aware that we are “planning”. Planning is a vital part of success and achieving.
Why Is A Personal Budget “A-Must-Have” for Your Financial Success
A Personal Budget is an important starting point of your financial journey. To gain greater control of your money you would need to understand your current financial situation. Here are 5 smart ways a budget can be used to control and grow your money.
1. Personal Budget – A Performance Indicator
Complete a Personal Financial Budget by listing your Incomes, Expenses, Assets and Liabilities. The first time you review your finances you might not be completely happy with the results, its OK. This is the just your starting point. Here is a brief description of the terms
Income: It’s Money coming IN.
Most people earn income from their job. You can also earn an income from interest, dividends, rent, etc.
Expenses: It’s Money going OUT.
Expenses can generally be classified as Essential (Fixed) and Non-Essential (Discretionary)
Essential Expenses are recurring expenses and are necessary for everyday living.
- Mortgage or rent payments
- Food & clothing,
- Utilities – electricity, water, gas, phone, internet etc
- Loan repayments – student loans, credit card repayments, personal loans etc
Non-Essential Expense are expenses that you can survive without.
- Dining out
- Entertainment
- Luxury purchases
- Hobbies etc
Assets – What you OWN.
- Property and stock
- Vehicles and personal items
- Other Investments etc
Liabilities – What you OWE.
- Loans – Mortgage, Personal, Vehicle and Student loans etc
- Credit Cards
- Other Borrowings etc
Surplus – When your Income Is More than your expenses
Deficit – When your Expenses Are More than your income
2. Personal Budget – A Planning Tool (To Set Your Goals)
Plan for the future by setting a minimum of 3 to 5 financial goals. Consider what is it that you are wanting to achieve. Make goals that are important and relevant to you. Your financial goals need to be realistic and achievable, make them challenging enough that they keep you focused and motivated. Your financial goals must make you happy
3. Personal Budget – An Organising Tool (To Prioritise your Goals)
Prioritise your goals from the most important to the least important. Then, list the actions needed to reach your goals. Create a checklist of action items. Track and organise your expenses.
- Pay essential expenses first
- From the money remaining set aside a portion for savings
- When you achieve a goal or reach a milestone treat yourself as a celebration
4. Personal Budget – A Monitoring Tool
We live in a fast moving and a constantly changing world. You need to be able to access your plans regularly to monitor changes. Review your budget at least once a fortnight
Be flexible with your plan, be prepared to adjust and pivot to keep yourself aligned to your goals. Don’t be afraid to change your plan or a goal when required to prevent a disaster.
5. Personal Budget – A Financial Tool For Improvement
After you monitor your financial budget for a few months you will begin to notice spending patterns emerging. Use this information to create “An Action Plan For Improvement”
An action plan is a daily or weekly schedule of small tasks that you need to do in order to achieve your goal.
