Of all the categories in financial planning, we have the greatest control over our income, expenses, and savings, so creating a realistic budget is essential.
As a basic budgeting structure, consider using the 50/30/20 rule. Give your needs up to 50% of your income. For wants, set aside 30% of your income. Spend 20% of your salary on debt repayment and savings.
Financial planning is centred on our sphere of influence. Despite the fact that we have no control over stock market returns, tax rates, or unforeseen events, we may prepare to limit these risks through diversification, tax planning, and insurance, for example. Of all the categories in financial planning, we have the greatest control over our income, expenses, and savings, so creating a realistic budget is essential.
Who is budgeting for?
Everyone in virtually every field can benefit from knowing how to manage a budget. When you plan and control your spending, you apply your knowledge and skills in budget management. These abilities can be put to use in a variety of situations, from managing the finances of huge companies to planning your spending on a small short-term project. You can effectively plan for future spending by using good budget management.
Keep it agile
So you've estimated your income, divided up your expenses into groups, and are keeping track of your spending. What happens if your budget is exceeded? Making sure your budget is adaptable enough to deal with the effects of excessive expenditure in a category is a crucial component of budgeting. Let's say you had R1000 set aside for groceries, but when you checked your account after your final shopping trip of the month, the amount was R1500. It's critical to change your budget by eliminating one goal or category of spending for the R500 you went over budget. Making your budget flexible will also assist you in understanding the impact.
Adjust your budget as you go
Situations change. Our priorities change as we move, change jobs, and have children. Schedule a meeting with yourself every few months to review your budget and see whether it still fits your goals and circumstances. It is simple to experiment with your budget categories to see where you can make extra room or prioritise one thing over another if your figures have already been entered into software or a website. Keep in mind that your budget should serve you, not the other way around.
If you are paid on commission or freelance, you know your income stands to lose much more when you fall ill and cannot work. Income Protection Plans help provide a solution for this. It also helps to save aggressively to support you through times when the economy is tough.
If you only receive a payment once a month and are experiencing cash flow problems, divide your payment into weeks and set aside the money you intended to spend in the subsequent weeks in a different account until you need it. Only use a credit card for purchases if you have the funds to pay it off at the end of the month.
Here are some helpful tools:
Use budgeting tricks, such as moving to a cash-only budget, if you tend to overspend. Budget for savings objectives after your expenses are less than your income before you increase your spending. To increase your financial literacy and make your money work harder for you, take the time to master additional financial skills.
