BUDGETING MONTHLY BUDGETING
Many of us find difficult to putting our personal finances in order. A simple budget helps you to plan where your income should go and helps to track your monthly expenses. Budgets do not guarantee you the power to spend every little, but to help you save for the future.
I have been to meeting where departmental heads insist so long as the budget has been approve, we must spend it. Cash flow makes budgets effective. Having the budget helps you know what to spend on, when the money comes and to what extent to tighten your belt hole in case your inflows fall.
Budgeting is an active process and a never ending activity. A budget can be explained as a plan that itemizes the expected income and expenditure of a particular project or an activity to be carried out. Budgets help you prioritize your spending and manage your incomes no matter the size of your income or expenditure. Budgets also helps you identify wasteful expenditure and quickly aids you adapt as your financial situation changes. I recall a situation where a friend within three days has finished his entire monthly salary and could not recollect how he spent it. He therefore concluded that evil spirits have punched holes inside his pocket and they drain off his money. I sat him down and assisted him pen down items he bought he was really amazed how wasteful he had been.
We all draw daily budget in a way or the other. The fact that we do not write them down does not negates the fact that receiving a bonus for example, from work at the end of year and wishfully dreaming how to spend it constitutes a budget. Writing it down helps you manage that income accurately. Some common mistakes we make are when we budget are:
Forgetting to check how you spent your previous budget.
Maintaining a budget is a fluid process. Often, people draw a budget once and then never revisit it again. In order to get the most out of your budget, it’s important to keep it current. What that means is inputting actual expenses each month to track whether you’re staying within your means. This also allows you to see how variable expenses operate within what you’ve established. For example assuming fuel prices increase in Ghana every two to three weeks. There will be the need to prepare your budget to suit this change and be adjust your budget to compensate for these variable costs. The use of simple budgeting software like Microsoft excel allows you to make adjustments to your budget easily as well as to track expenses. Budgeting software also helps you avoid making mistakes with calculations. Remember to make provisions for Tithe and Offerings if your religion says so.
Budget to save not budgeting to spend.
Many people overlook budgeting for savings contributions. Often they decide to contribute whatever is left over to savings or ignore savings altogether. By not specifically itemizing savings contributions in the budget, many fail to make these contributions on a regular basis. If any unexpected expenses arise, they find that entire budget has been demolished.
It’s wise to include contributions to an untouchable emergency savings account as well as a functional savings account for irregular expenses. The goal of an emergency savings account is to build up enough money to cover at least three to six months of your monthly expenses.
Not planning for inevitable, irregular expenses.
Not all expenses come like clockwork each month. Some expenses are due bi-monthly, quarterly, or appear at random times throughout the year. Examples of such expenses include rent advances, car maintenance, clothing, pet expenses (yearly vaccinations), medical bills, school fees, gifts, and donation to external relations and church. One way to budget for these expenses is to determine the annual cost and average it out over 12 months. Make monthly contributions to a functional savings account that you can draw from to cover these irregular expenses as and when they approach you. You don’t want to be caught pants down with these unplanned but necessary expenses.
Little waste creates waste.
The only way to see exactly what you are spending your money on is to include all of your expenses big and small on your budget. You might not think you need to budget for the taxi fare you give your girlfriend who comes to visit you three times a week. Assuming you give her GHs 20 per visit, a month will be GHS 240 while a year will amount to GHS 2,880. That’s significant enough to include in your budget if your annual earnings is GHS 24, 000. Petty expenses like tips, Friday night outs seem small at first glance, but when you aggregate them you will know how much you throw away.
Making your budget too strict.
One strict measure that comes to mind in cutting down on grocery expenses by living on “beans and rice”( waakye) but you may take it too far by stop buying meat entirely and even stop eating dinner out with friends and totally stopped spending any extra money. These extreme measures to become debt free will work but in retrospect, living like that will not be healthy for you. What is the sense in coming out from debt with sickness. There should a healthy balance of living while still budgeting and saving. It will cost more to take friends out for dinner than to invite them to your place for dinner. This will even help you to show off your cooking skills.
Living unnecessarily Large.
It seems like it goes without saying that your income should exceed your budgeted expenses, but many people actually run their budget at a deficit. Often this is caused by making one or more of the aforementioned mistakes. A successful personal budget should include paying off debt, saving for variable expenses and saving for true emergencies. If you do all of those things, your budget should help you live debt-free. I don’t see why you would have to buy a designer bag for GHS 390 only to put GHS 10.00 in it. The rich have the habit of living within their means and investing more in savings for the future while the poor enjoys the extravagant lifestyle just to command little respect.
This thoughts will help in a long way to manage your finances well.
This was published on 10th August, 2015 in the Business Day Newspaper, Ghana
About the Writer…
Peter A. Williams is a Tax consultant, a Chartered Accountant and Certified Business Process Outsourcing Master Trainer and an SME finance coach. He blogs on issues on Finance, Management, Fraud, risk, Tax and business process re-engineering. He currently works with Pentecost University College as a Deputy Account Manager and was part-time Lecture in Quantitative Methods and Advance Taxation. He consults for Gospelgh.com pro bono. He may be contacted via firstname.lastname@example.org.