Creating Your Budget may sound complicated, but all you need to do to get started is set aside some time and get organised—the benefits will make the effort worthwhile.
Every good budget is born out of clear and precise financial goals. Financial goals are objectives you want achieve financially over a defined period. They may include things such as getting out of debt completely, creating multiple income streams, planning for early retirement, achieving financial freedom, having enough insurance to cover for contingencies etc. Without these goals, it becomes extremely difficult for one to set a solid financial goal, it is therefore very important that you define where you want to be financially and create a solid budget plan to help you get there.
- Be analytical about your budget. When drawing up a budget the most obvious and important thing to do is to make a “needs” and “wants” list. This will help you evaluate what you can cut back on. When you start spending less on things that you do not need your ability to save will improve significantly.
- Get into the habit of spending what is left after saving. This mindset shift will completely change your outlook on money. You can start by saving minimum of 10% of your salary immediately after receiving it. As you get better at this, you can gradually increase the percentage you want to save. Banks provide a number of tools that can help you facilitate this, for example, you can set up a stop order or an automatic transfer between your cheque and savings account. This eliminates the hassle involved in manually moving money between accounts.
- Get everyone on onboard! Make sure your spouse and kids understand that you are going to be making cuts on certain expenditures that will affect their lifestyles. Make sure your friends understand that you will not be doing certain activities that you used to do with them. This makes the whole process of budgeting easier.
- A budget needs to be captured and tracked weekly. You can capture it on an excel sheet in your computer/laptop or download a number of budgeting apps which are available on the android app store or apple store. Monitoring your expenditures helps you to keep your eye on the prize.
- Use the 24-hour rule! The 24-hour rule is basically taking 24 hours to think over non-essential purchases. This helps to avoid purchasing expensive or unnecessary items on impulse and can help you save money and stay in budget.
- Once you’re free from paying interest on your debt, that money can then be used for your savings. A personal line of credit is just one option for consolidating debt so you can better pay it off.
- Be strict in allocating yourself an entertainment budget and don’t go above it. Being sociable doesn’t have to be expensive -think nights in with housemates, free events at your union or two-for-one cinema nights.
- Remember that the goal of budgeting is to spend less than we make and as a result save money!
*These tips are part of a financial literacy series by Stanbic Bank Botswana
