Financial management is one of the fundamental areas hardly taught in school. In essence it is as paramount as earning money itself. Most hard working folks often find themselves entangled in what I would call the rat race phenomenon.
This is a scenario where expenses sky rocket to biblical proportions current months salary is used to settle previous month’s short comings (borrowings and unpaid bills) and the cycle continues to subsequent months. It is not unusual to find ‘high’ salary earners who are constantly in debt or financial constraints that are cyclic in nature. This can be solved by use of an elaborate personal budget.
A budget is a breakdown if ones income and expenses. Though budgets have been extremely emphasized over the years, few people actually use them and still there are those who use them up until they get to the mall then all hell breaks loose.
In setting up a budget it’s important to separate incomes and expenses. Income is money that comes in which essentially should be net income after taxes and deductions, for people in business it’s money you pay yourself from your business.
On the other hand, expenses mean monthly expenditure, for example fuel, electricity, food, rent etc. A budget can simply be done by use of a notebook, spreadsheets like excel or any other computing software can also be used. It is however necessary to check on the costs so as not to override the intention.
Here’s what you can try:
- Fill in best estimates for each category where actual data is not available, the totals will sum up automatically. For expenses that accrue on a yearly basis divide the total in twelve months to establish the monthly expense.
- The next step is to track expenses for the following month. It will surprise you that much of your spending maybe on ‘wants’ rather than on ‘needs’. As you go along you will make adjustments depending on priority and eventually an ideal working budget will be formulated. This should contain some set-aside funds for emergency and monthly savings. Ideally savings should take up around 20% of the income.
- Setting up a standing order from the pay point to savings is an easy way to discipline oneself.
It is important to note that the process is more of a marathon than a sprint, an over aggressive budget would only work in the short run.
Charles is our newest addition to the Android Tipster team. He went to high school with Noah and is now an accountant and a businessman by profession. Both have remained close friends since.