How many of us stay within our budget? The ultimate answer to this question would be not many of us. However, some will accept the failure of staying on track within their budget. Budget is one of the most discussed methods of how to manage money however, some people do have issues understanding why on earth one has to plan for their money yet they are working and money keeps on coming into the account every month. Like everything else in life if one wants to succeed or live comfortably then creating a budget is the way to go.
What is a budget?
A budget is a well-planned document outlining how money can be spent within a certain period. This time can be a span of six to a year or more. Government and big organisations budget their money aligned with their strategic plan. A budget is divided into different segments which include incoming money, money budgeted on different projects and the actual money used within the specific period.
The objectives of a budget are realised after a year is finished or when the money was planned for is completed. That is when organisations are aware of whether they have a surplus (profit) or a deficit (loss). The same concept of creating a budget in big organisations is used for personal budget-making. In the personal finance budget, there are absolute needs in one’s life. There are also other things which are not so much of a necessity, might be of importance but one can survive without them.
Personal budget
Personal budget organises one finances and, in this budget, it is divided into need, want and wish for. The needs are those things we cannot live without such as a house, medical insurance, car insurance if driving, electricity, water and the list is not conclusive. The second element in a budget is the desire to want something like brand clothes, shoes, going out and the rest. The wish for are those things people would wish to have but due to financial restraint they are not able to achieve them and they can only wish for them. However, some of the wish for can be realised after a long time of planning.
Before any budget is drawn, there is a need to know what comes into the account first. The income provides a fair understanding of how the budget might look like and what money is allocated where. Any income including those of the side hassles has to be accounted for. Plus, any other coin coming into the account regardless of presents and gifts. Collectively one can know what money is there at hand for budgeting.
Before budgeting other areas where one has to look into is money which goes out automatically, normally when paying bills organisations remove their money from the account with your permission. Most of this money is often forgotten. While budgeting it is imperative to incorporate this money otherwise the budget will be incomplete.
Making a budget is easy, it is a matter of organising money and prioritising areas of needs. It is also important to know that living is part of life and there is no need of working so hard just to budget and not pay yourself. Any budget must include a payment to self, then budget for the needs and remember to save for tomorrow. A good money principle is to spend eighty and keep twenty percent.
Staying on top of a budget
A budget is a living document and it is a tool that helps one to realise their objectives in terms of finances. However, like any other tool a budget has to be used and followed according to its plan. Otherwise, no need of creating a budget if not going to be utilised for the reasons it was created for. Some people take the initiative of creating a budget but two months down the line they forget that they had one in place. They might go out of their way in spending their money then start blaming the budget when the problem is themselves.
Let us look at this case study of Mercy who is personate about organising her money.
Every start of a new year Mercy sits down and creates a nice budget to take her over the whole year. Mercy is always determined to make the budget work as her new year resolution. In the first three months Mercy religiously follows her budget to the latter then during the Easter holidays, she reverts to her old habits of binge drinking with friends and online shopping spree. Before Mercy knows it, the budget is out of the site and anything she had promised herself had gone out of the window. Mercy re-assures herself that by the end of the year she will seriously commit herself to maintain and living according to her budget. Do you think Mercy will ever meet her new year resolution?
My upcoming book is about managing money. Please contribute your views.