All financial planning starts with budgeting. A budget is a roadmap for your finances. Just as you would find it very difficult to travel across an unknown city without a map, you will have trouble managing your finances without a budget.
A budget is a list of all your household expenses including housing costs (rent/mortgage), bills, school fees, travel costs, insurance, food and so on. Strict budgeting will enable you to build your financial wealth and secure your financial future.
Here are eight functions of a budget:
Your financial roadmap
- Your budget will tell you exactly how you spend your salary each month. It can reveal areas where you are taking a wrong turn and enable you to adapt your route accordingly. Your budget changes along with your financial responsibilities. If you get married or have a child, household spending is likely to increase and your budget will change.
Reveals overspending
- If keeping expenditure below income is tricky for you a budget can reveal where your weak points are. Overspending on items not in your budget can easily be identified and corrected.
Frees up money for saving
- Saving is essential for financial security. You should include a saving element in your budget as a matter of course each month. As Warren Buffet famously said ‘Do not save what is left after spending; instead spend what is left after saving.’ Make pay day your save day.
Enables you to identify financial priorities
- The process of budgeting will force you to think about what your financial priorities are and encourage you to focus on them. If you have a partner, budgeting together can help you both identify what your financial priorities are. These may not tally so you will need to talk through how and where you disagree and come to a compromise. Open communication from the start will help reduce conflict, which is important as money is the biggest source of conflict between couples.
Establishes good financial habits
- The mere fact of working out where your money goes each month often leads to more mindful spending. Once you realise that you are frittering hundreds of dollars away on needless internet shopping binges you might think twice about making frivolous purchases. You will start to adopt more positive habits such as debt reduction and building wealth through saving.
Enables you to build wealth
- Budgeting enables you to move out of a life where you are subsisting and spending everything you earn each month to one where you are saving and building wealth over the long term.
Helps you to cope with emergencies
- Once savings start to accumulate, you can set aside an emergency fund. This should be around six months of earnings and kept easily accessible. The peace of mind which comes with knowing that whatever life throws your way you have money set aside to deal with it is priceless.
Reduces stress
- Budgeting puts you in the driving seat when it comes to your finances. Money is the greatest source of worry for many people so it follows that taking control of your money and securing your financial future over both the short and long term will reduce stress.
Budgeting is a meaningful practice that will lead to a true understanding of your financial situation and done properly it will enable you to vacation more, retire early, send your children to university and achieve all your other personal financial goals. In short, it gives you choices, both now and in the future, and that is definitely something to celebrate!
Do get in touch with me at jregan@infinitysolutions.com if you’d like to have a chat about your financial needs!
Senior Financial Consultant
When I provide a financial consultation, my approach is to treat my client like a business entity I am in collaboration with to achieve their goals and objectives. Through a combined client/consultant effort I seek to improve their strategies, stressing that actions without positive results are costly and a setback to their financial futures. My priority is always a successful end result.
