Learn to budget to avoid financial disappointments

Sanderson Abel
Budgeting is often associated with deprivation and cutting back. However, creating and maintaining a budget does not have to be a painful process. It is important to appreciate that the concept of budgeting is solely meant as means to concisely create a better environment for yourself using your available resources. It is therefore good to start the new budgeting concepts as we start the year. It is ideal to start the year on high note of financial discipline which will put you on a pedestal of achieving your goals.

The following are some of the budget basics that one can follow in structuring their financial plans for the year.

Keep it simple — While a budget can be a great tool for managing finances, it can quickly become overwhelming if it’s overly detailed or idealistic. There are things that you will likely sacrifice when budgeting, but it’s very important to be realistic and understand your own habits. The hardest part of a budget is sticking to it, so the easier you can make it, the better.

Set a time period — Establish your budget for a time period that’s long enough for you to see results. Budgeting month-to-month can accommodate everyday living expenses and bills. On the other hand an annual budget will assist in planning for larger and more infrequent expenses, like purchasing a new house and taking a housing mortgage.

It is important that at least as you plan you have a foresight of what’s your long term objective and how the short term feeds into it.

Build an emergency fund into your budget. An emergency fund should be an essential component of every budget. It can help you finance unexpected expenses like medical bills so you don’t have to pull income from other areas. Since you never know when the rain day will come, it is important that you factor in a contingent fund into your budget so that at least you have a shield against the unforeseen. The bank will be the best place to keep these resources rather than putting them under a pillow.

Involve everyone concerned — Given that usually we don’t live in isolation, the budget that we develop have an effect on those whom we live with, it is important that we involve them in the budget formulation process. Understanding other people’s perceptions about how money is used especially in a family is very important.

Everyone needs to be on the same page and after the same goals for the budget to be successful. Being open with those around you about your budget can also help you create a support system while you work to get your finances on track.

Make adjustments along the way — The budget is not supposed to a rigid instrument for financial management but rather should have an inbuilt mechanism for adjustment. If over time, your budget results don’t match your expectations or financial needs, you may assume the plan is wrong. However, it’s likely that you simply uncovered unknown problem areas hence the need to adjust the budget taking into consideration those aspects that are ballooning the budget or understating the budget outcomes.

Adjust income sources rather than cutting on expenditure- One strategy that has been used to control budget overruns is the idea to cut down on expenses without due regards to the need to adjust the income side.

Following a budget typically means making cuts in less essential areas or eliminating some costs completely. However, if reducing the amount of money going out isn’t doing enough, look for ways to increase the money coming in.

This might involve taking on some part time jobs or disposing some of the materials that you no longer use.

Restrict amounts earmarked for discretionary spending — Once you realise that your budget is under-performing, eliminate discretionary spending from your budget altogether. This should apply when you realise you are having trouble paying bills and achieving your financial goals.

Discretionary spending goes toward consumer goods and services that are not mandatory for survival. Concert tickets, designer clothes and luxury spa treatments would be examples of discretionary items.

As we start 2016, putting these little financial tricks will help cultivate a culture of financial discipline. This financial discipline will help us achieve our life goals and urge us to do more and more. Discipline is a necessary skill for proper financial management. Without it you will never acquire or accumulate anything. Without it you will never accomplish anything.

Discipline is being able to say no when you need to and to be able to put money away instead of spending it. It is being able to do the things you don’t want to do when you know you must. It is forcing yourself to do the things that are necessary in both your financial life and your non-financial life.

Enjoy a financial success in 2015 by practicing these financial basics.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008

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