Budgets

Why Budget?

The word “budget” means “annual estimate of revenue and expenditure of a country, or organisation; private person’s, or family’s similar estimate; amount of money needed, or available;” as stated in the Concise Oxford Dictionary.

In general terms, by preparing a budget you are able to forecast your approximate weekly, or monthly income and expenses, and prepare a financial management plan to meet those demands.

Reasons To Budget

The preparation of a personal, household, or business budget is an important tool in the efficient running of an organisation. It enables you to identify and monitor areas of spending. It provides opportunity to recognise and prepare for upcoming and larger expenses and it helps to ensure that you have appropriate funds available, as and when they are needed.

A budget also allows you to identify whether you have sufficient funds and can afford the ongoing expenses of large purchases, such as a new car, a new house, or a new employee.

Consequences of Not Budgeting

Unfortunately, many people do not prepare budgets for various reasons and regularly find themselves struggling to meet payment deadlines, living from pay cheque to pay cheque and being constantly short of money. It can also be the catalyst in a business going broke.

How To Budget

The starting point of every budget is the income. It is important to know how much income you have on a weekly, or monthly basis after tax. That is the base income you receive in your hand at each pay day, and that does not include any overtime or bonus payments.

The next step is to identify all of your expenses. The types of things you need to consider include household, or office expenses, such as telephone, electricity, gas, groceries, magazine subscriptions, stationery, wages etc, car expenses, such as petrol, registration, insurance, tyres etc, existing loans, such as rent, mortgage repayments, visa card payments etc.

Now complete the following sum:

• total income $ divide by 52 weeks (in a year) = $A;
• total budgeted expenses $ divide by 52 = $B;
• in order for you to have enough funds in your budget to meet your weekly financial responsibilities, you should be putting away $B from your weekly income of $A;

 Finally, and most Importantly!

Stick with it! The first few weeks-months of a budget are generally the hardest and you will find yourself having to dip into your budget, or your savings to fill the gap. However, if you have been honest and included all of your spending in your budget, you will soon find that it becomes self supportive and you will have enough funds for all of your expenses.

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