“Money is not the most important thing in the world. Love is. Fortunately, I love money.” – Jackie Mason
For a long time, specifically in my early-twenties, blinded by the excitement of making my own money (a very sad and dismal salary from serving articles) and being in control of what I spent it on, budgeting was a distant and foreign concept to me. However, there were inherent principles behind the art which I abided by, based on logic and responsibility. These inherent principles, one would call “winging it”, are possibly what have kept you going without using a budget thus far.
With February being the month of love and all things red, rosy and romantic, there is no better opportune time for you to fall in love with, wait for it…budgeting! Here are four easy steps on how and why.
As you begin to get back into the dating game, you venture out from your “comfort zone” and always put your best foot forward. So it should be with budgeting. The concept of budgeting, like the beginning stages of dating, is indeed daunting. It forces you to come face-to-face, on a regular basis with the reality of your finances.
Should your outcome of dating be to fall in love, the outcome of budgeting should then be to reach your financial goals; be it saving for the short or long-term, using excess cash to serve communities or even overcoming your debt demons. The first thing then is to define your own financial goals which will enable you to get into the habit of budgeting.
Get started by looking at your past spending patterns. The easiest way to do this is to obtain your bank statements for the past three months. This will help you identify the type of income and expenditure that is consistent and recurring. The various income and expenditure should also be grouped based on similar themes e.g. entertainment, sport, household etc. This is the base for creating your initial budget.
Once you have identified your consistent monthly income and expenditure and grouped it accordingly, create a budget by;
First calculating your expected monthly income. For most of us, this will be our salary. Should you have any additional income (dividend income, interest income etc.) this should also be included.
Then calculating your expected monthly expenses. You should note that there are fixed and variable expenses. Fixed expenses are those that are will occur on a regular basis and are usually the same amount (e.g. rent, petrol, groceries, “The Lobola Fund” etc.) The variable or exceptional expenses are often once-off and linked to a specific event or occurrence. (e.g. Valentine’s Day gifts, vacations, motor insurance excess etc.) The variable expenses are often harder to quantify however, always try to factor the most predictable ones into your budget.
Lastly, deduct your predicted fixed and variable expenses from your monthly income. You will either get a negative or positive value. This helps you to evaluate whether you spend more money than you are making, or make more than you are spending. Any surplus money (positive value) as a result of this exercise should then be directly linked to your financial goals and assist with further decision-making.
The honeymoon phase in relationships is the moment you begin to feel a sense of security and comfort with your chosen partner. In order to reach the honeymoon phase of budgeting, discipline and commitment to the art are vital. You begin to become aware of and take ownership of your finances.
At the end of each month, you should compare your monthly budget to your actual spend. Some of my favorite tools are YNAB and Mint as these assist you to record your actual spend as you incur it. Your bank statement will also highlight what your income, fixed and variable expenses are for that particular month. The discipline is around aiming to consistently stick to your budget.
Always remember that a budget is a projected view of expected income and expenditure. You need to consistently monitor and adjust it if needed to ensure that it reflects the true status of your finances. Budgeting is about being flexible yet disciplined but most of all, having a sustainable approach that will help you to reach your financial goals and ambitions.
Click on the links below to get the tools that will start you off and aid you on your journey of falling in love with budgeting:
Always remember, the Working Gal plans and prepares. She does not take anything for granted and recognises the crucial value of every single hard-earned Rand. She is responsible.