Archive for the ‘Wealth and money’

October 18th, 2007

Manage your money

The secret of managing your income and building wealth is to us a budget. OK, so the idea of a budget is not very appealing, conjuring thoughts of privation, discipline, will power and boring, accountant type calculations. But it’s really not that bad.

Who needs a budget? Just about everyone but one is crucial if:

  • Money burns a hole in your pocket.
  • You are losing control over your credit and debt levels.
  • Spending has become a habit and a pastime.
  • You are scared to face your true financial position.
  • You are afraid to open your mail or answer the phone.
  • You want to save money.
  • You want to stop being a slave to your impulses.

A budget is the best and easiest path to prosperity. A budget is a tool that helps you:

  • Keep control of your money.
  • Ensure you are financially safe.
  • Live within your means.
  • Stop falling into deep debt.
  • Avoid the stress of being out of financial control.

The simplest and easiest way to budget is to write down all your major expenses, add them up, divide the total by the number of pay periods you have in a year and deposit the resulting amount in a special bank account from each pay cheque. Then, when bills arrive the money will be sitting there ready to pay them.

If your want more than that, if you want to be able to tailor your spending, to save and to have greater control, a more detailed budget is needed.

To work out a comprehensive budget get a notebook. Then gather all your financial records and bills (your already keep them all together in one orderly and safe place right?)

Next, in your notebook, list all your net income – wages/salary, government payments, investment earnings etc. and total the amount (make sure to subtract any taxes etc so that the figure you get is the amount available to spend).

Then list all your expenditures (and I mean all). Something that helps many people is to keep a record for one week of every cent spent. This usually uncovers otherwise overlooked or incidental spending which soon adds up).

List all your fixed expenses such as rent/mortgage, rates, car repayments, other loan repayments, insurances, car registration etc.

Then list the expenses that can vary in amount: phone, gas, electricity, water/sewerage, vehicle repairs, school fees and other expenses, childcare, public transport, internet connection, pay TV, groceries, dentist, doctor, health insurance, parking fees, cigarettes, alcohol, dining out/takeaways, stationery, entertainment, video hire, CDs, books, newspapers, magazines, haircuts, cosmetics, clothing, taxis, house maintenance and decoration, manchester, gym membership, medications, pets, veterinarian, lotto/gambling, babysitter, holidays, gifts, garden, personal allowances, and anything else you spend money on. You may need to estimate the yearly accounts for some of these variable things.

When you have your totals for yearly income and expenses subtract the expense total from the income total. This figure is a sign of your financial health. Is the result a positive or a negative, pleasing or scary?

Then to get a figure to work with, divide both income and expense totals by the number of pay periods you have in a year (either 12, to get a monthly figure, 52 for a weekly one, or 26 for a fortnightly one). Now you know exactly how much of your income you need each week (or fortnight or month) to cover all your commitments.

If we are at all concerned about our future, we should not spend all we earn. If income and expenditure are around the same (or worse, if expenditure exceeds income) things are not good. There are two options—either earn more money or cut back on some expenses. Go through your list and work out where you can economize, what you can cut down on, or give up.

Most people live up to, or above their means. But what happens if you have an unforeseen expense (the car breaks down say) or you get sick, have an accident or lose your job?

Saving something each week should be our first priority not our last. Every budget should allow for some money to go into a savings or investment account or at the very least to put aside an amount for a ‘rainy day’ emergency fund. And that money should come out first, along with the priority expenses such as rent or mortgage payments. Spending on luxuries and non-necessities should be the last priority if you want any sort of financial security.

Don’t be a financial ostrich with your head in the sand. Know your financial position through the use of a budget and then use that knowledge to plan your future.

Copyright 2007 All rights reserved.


See related articles: