In almost everything that we do, having a plan is crucial. When you get a carpenter to build a house for you, he will draw out a plan before he start building it. If he didn’t the bathroom might get overlooked altogether. Similarly, an aeronautical engineers would never start work on assembling the aircraft avionic system without a detailed set of design specifications. Yet most of us go blindly out into the world. We want financial success but simply don’t put a thought in planning our money. We never realize the importance of having a budget.
A budget is an essentially a money plan. Having a budget will give us a clearer path towards our desired financial goals and we would get there faster. Otherwise we would drift without a clear direction and end up stranded on a distant financial reef. Before you embark on creating your budget, you must first identify your financial goals – long and short term. If you are married, sit down with your spouse and list out your joint goals. When you have the goals set, plan your route to get there. Every journey begins with one step and creating a realistic budget that both you and your spouse can live with is a good first step towards attaining those goals.
When you have a budget, you may have to give up some of life’s comfort. However, it does not mean you have to go on a financial starvation diet. There’s no tangible benefits doing that in the long run. Don’t scrimp on food, clothing, shelter, utilities and insurance, etc. Make reasonable allocations for these and other basic necessity. Set aside a reasonable amount for entertainment and the occasional luxury item too. But bear this in mind. Save before you spend. Credit the money allocated for savings first and then spend the rest. Even a small amount saved will help you reach your long term and short term financial goals.
There are many methods to go about creating a personal budget. The simplest method starts with you listing your sources of income, allocating expenses for categories like utilities, food, kids school fees, savings, etc, record all spending during the month, reviewing it at the end of the month and finally making adjustment for the next month’s budget. There are other methods on the web. Just search using keywords like “how to create personal budget”. You’ll get many results. Review and select one. Work on it with your spouse or significant other. Both of you will need to be happy with the choice and feel like its something you can stick to. I have shared the one that I’m using, the JAR Money Management System.