“A budget is more than just a series of numbers on a page; it is an embodiment of our values.” – Barack Obama.
I know budgets and budgeting may be challenging to those reading this right now. You see, as I sit in my study crafting these lines I’m racking my brains out. I sure as hell don’t want to make your wealth journey more complicated than it already is. The fact however remains that you need a budget!
Budgets are essential to your financial success. A budget, according to Dave Ramsey, “is telling your money where to go instead of wondering where it went”. This is exactly the situation many of us face when it comes to our finances. Before the month ends we start to wonder what we did with our money! Wouldn’t it have been better to determine where your money goes before you spend it? You bet!
Now countries, organisations and individuals should have budgets. There is indeed the duration/time frame to consider. While countries and organisations can budget for longer periods, individuals should budget monthly. This entails previewing spend for the current month and planning expenditure for the next month.
Budgets and budgeting should not give you cause to fret. Loads of apps and software are available to make budgeting a breeze. Just ask google! Do your homework and select the one that will make it a fun and easy task for you. Please however make sure that your preferred solution allows you to budget in your local currency.
And, for those die hard non-techies you can design one yourself! Microsoft Excel can be quite handy. Open a new worksheet with 4 columns – Expense Heading, Budgeted Spend, Actual Spend and Difference. Now under Expense heading list all your expenses one after the other, line by line. In the next column project what you are going to spend on each expense, i.e budgeted spend. Endeavor to do this before the month you are budgeting for begins. For instance budgeting for June 2017 in May. Always remember to budget in line with your income or inflows.
Once June 2017 starts begin to record all actual expenses under each expense heading. It will require discipline to tally amounts spent daily. You could even set a reminder on your phone to enter your expenses every day. It gets easier as you continue. It’s now the end of the month. Compare your budget against the actual and record the difference in the difference column.
You will notice one or the other of two possible outcomes straight away. A positive difference – you spent less than your budget. A negative difference, alternatively occurs when you spent more than you budgeted. Questions arise at this juncture – why the spend was more or less. Take note of your reasons for the variances.
It’s now time to prepare July’s budget. Create the same table. Before including any budgeted figures revisit the previous month’s budget and actual figures. Did you over or under budget any expense headings? Has any new information arrived that will cause you to review previous budgeted figures? By all means monitor and make the necessary adjustments. Keep repeating the process and analysing the results.
Budgeting led to the following outcomes for me:
- I had a clear picture of what I spent my money on, monthly;
- I started to question my decisions to spend or not to spend much more;
- It became easy to see where I could make cuts and savings;
- Decisions to spend became less spontaneous and more the result of careful planning;
- Saving money became easier because I budgeted in accordance with my financial goals;
- I could more easily keep aside and track funds meant for investment;
- My confidence in my ability to manage money increased tremendously;
- It pointed out the things I valued. One usually spends more on things we value.
- You better appreciate the needs versus wants argument
- A budget opens you up to the possibilities of not spending all that you make.
Dave Ramsey further opines that, “a budget is a passport to a healthy financial life”. It’s about giving every Dollar, Euro, Pound or Naira a purpose. It’s a tool that will help you better control your money. Technological advancements have made it so easy to budget, there’s really no excuse not to. You can’t even go wrong with google on hand to help you find your way to becoming good at budgeting.
In conclusion it pays to make budgets and budgeting part of your lifestyle if you want to be rich. No, not rich but really, really rich. This will give you a good chance of getting out of the rat race to create lasting wealth and riches.