Tips For Staying On The Budget
By making a conscious effort to allocate resources for current expenses, as well as saving for future goals, a budget plan gives us clarity to your financial situation.
IS budgeting for those with limited funds only? A lot of people shun the idea of budgeting as it connotes limiting their freedom to spend. In reality, a budget is a spending plan for everyone. Not many people realize that it is an important tool in helping us achieve our personal financial goals in the same manner that successful companies conduct planning sessions to work on their cash flows. Here are some tips to help one set up a spending plan and be able to stay on the budget.
- SAVE FIRST BEFORE SPENDING. This principle espouses that we allocate a certain percentage of our income for future needs or goals before we start spending the rest of the money. The allocation depends on an specific individual situation. A good guide is to save 20 percent and spend 80 percent for regular monthly expenses. The bigger the percentage you are able to set aside, the shorter the time frame needed to achieve your other goals.
- SET YOUR GOALS. Whatever your financial goals in life, you can realize them by setting up a budget while maintaining flexibility for changes in your life that can have a significant impact on your finances, such as planning to work abroad or having a new baby. Classify your goals into short, medium, and long-term goals and be sure to write them down in a worksheet where you can review these specific, measurable, achievable, realistic, time-bound (SMART) goals constantly.
- PREPARE A BUDGET WORKSHEET. A cash-flow tracking sheet contains information pertaining to sources of income, as well as an itemized list of your regular household expenses under uses of funds. You may also include seasonal expenses in your spreadsheet. By monitoring this regularly, you can regulate how much of your income goes to fixed expenses and discretionary expenses. At the end of the month, deduct the total expenses from the total sources of income to determine your bottom line from household operations. If you are unhappy with the figures, you can choose to cut back on specific expense items or find ways to increase your income.
- SET UP AN EMERGENCY FUND. Make sure that you have an emergency fund in place, which is roughly equivalent to three to six months of your income. An emergency fund is one that takes care of unforeseen events, such as an accident, loss of job, calamities and the like. Without an emergency fund, all of the things you plan for may just crumble with a single emergency. If you don’t have an emergency fund in place, start saving for this by prioritizing it in your budget.
- ALLOCATE A FREEDOM FUND. A freedom fund is the amount of money allocated from your income that you can spend for whatever catches your fancy, no questions asked from significant people in your life. It can be something that you want to splurge on but hesitant to do due to guilt feelings, about more important family priorities above your own caprices. Why is this important? It serves as a motivation for you to keep on working on your set goals and not feel deprived. A freedom fund may, therefore, be viewed as a reward for being able to stick to your budget that makes life more exciting.
- TRACK SPENDING HABITS AND REVIEW PERIODICALLY. Tracking your expenses gives you a financial picture of where you are in relation to your goals. If you find that your expenditures have gone awry, you can devise solutions to solve the situation immediately. Additionally, take note of changes in your individual circumstances as it may warrant a reassessment of your goals.
By making a conscious effort to allocate resources for current expenses, as well as saving for future goals, a budget plan gives us clarity to your financial situation. Thus, it should be easier to sleep peacefully at night knowing you have a structure in place to realize your dreams in life. In essence planning and execution is crucial to ensure we can fulfill our goals in every life stage!
Arlyn Cheng is a Registered Financial Planner of RFP Philippines. She is a Financial Advisor of a leading insurance company in the Philippines.
Source: http://www.businessmirror.com.ph/tips-for-staying-on-the-budget/
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