Benjamin Franklin once said “If you fail to plan, you are planning to fail!”, and there is nowhere this is more important than in the quest for financial sustainability. The absence of a proper financial plan can lead to financial crises. A personal budget, also known as a spending plan, a plan that helps you distribute your income towards your savings, expenses and debt repayment over a period (monthly, quarterly or yearly) – is one sure path to financial sustainability.
Having a personal budget helps you;
- Plan and track your expenses – you can plan your expenses, keep track of your expenses and identify what you spend most on and cut down on certain expenses if need be.
- Save for future goals – if you have financial goals you intend to achieve, a personal budget can guide you in saving towards achieving such goals.
- Spend wisely – because you keep record of your spending, you will know if you have a bad spending habit and not spend money you don’t have.
- Plan for emergencies – a certain portion of your income should be kept towards unexpected expenses, so you’ll not have to borrow to cover for those expenses when they arise.
- Live a debt-free life –following your budget will guide you in repaying your debts and keep you out of debt.
Steps in Creating a Budget
- Record your whole income, i.e. income from all sources
- List all your expenses. Classify expenses into fixed (e.g. rent/mortgage) and variable expenses (e.g. groceries)
- Sum your income and expenses, your total income should equal your total expense.
If your total expense is more than your total income, adjust your expenses. If your total expense is less than your income, then you are off to a good start.
Apps such as Mint and 1Money are great and easy to use personal budget apps that can be downloaded on playstore or appstore.
Have a budget, Control Money, and don’t let Money control You!