A builder of a house follows a blueprint/house plan to build the house. If they didn’t, the important aspects may get over looked. Having a budget follows essentially the same concept because it is a crucial part of achieving your financial goals. This is why it’s important to consider budgeting.
Without a blueprint to show you where your money is going in relation to where it needs to go, it is very easy to overestimate your funds and underestimate your spending. Avoid being vague when it comes to your money.
Make it clear; be specific, intentional and focused. This can be difficult as there are many pressures to spend your money but you don’t need to spend it. Most stores, offer store cards but you don’t need those. The advertising is aggressive and is targeted to people of all walks of life but now, you’re smarter than that.
First, there are a few components to consider as you plan your budget.
- Where are you now :
Evaluate your financial situation. Compile all your financial obligations along with your financial goals for the future. Common goals are paying off credit card debt, student loans, saving for retirement, buying a house etc. All of these are important to consider when planning your future. Consider using a balance sheet to assess your net worth.
Total Assets – Total Liabilities = Your Net Worth
2. Road map on how to get there:
This is where having a plan and a written budget will come in handy. You can call it a money plan. This includes both long and short-term goals which will help you accomplish those goals in the future.
Bear in mind that it takes about 3 months to get the budget right to where it works well for you. This is a plan that can accommodate your life changes for example, when you get a rise, or pay-off all your debt or plan to purchase a house and fund your retirement.
As you create your budget, necessities come first, food, shelter, clothing and utilities. If you ever find yourself in an overextended financial situation, consider first paying the necessaries, then secured debt and then unsecured debt will follow respectively.
3. Follow the plan:
This will require discipline and perseverance. Consistence is crucial. If for any reason, you think you are failing, keep trying until you get it right. Giving up is not an option when it comes to managing your money. Focusing on the small victories along the way and your overall goal, will give you the momentum you need to follow through with your plan. You can choose to do it yourself or find assistance from a professional. This is especially important with making sound investment decision and estate planning.
4. Review and Revise:
A personal financial plan is a moving target as your life changes such as marriage, having children and buying a home. You have to monitor and make the necessary changes to your budget as life happens to you. Monitoring and reassessment are important as time passes; one’s personal financial plan must be monitored for possible adjustments or reassessments as you may find over time you’re spending more or less in some areas.
Whatever budgeting method you choose to use, simple pen and paper or software, focus on your plan and make the necessary changes to accommodate your lifestyle. Be mindful of your end goal.