Some simple tips for successful budgets
The important thing to remember about budgets is that they are your guess of the future.
Invariably your financial position at the end of each month will be different from your budget. Having said this, budgets are extremely useful. Having a good plan, that you follow, is definitely better than having no plan at all.
Tip 1: Build your cash reserves QUICKLY
This is really what it is all about !! If you have enough cash reserves to handle the worst eventuality then you don’t have a budgeting problem. Your spending, however, may be more than you would like and this will clearly impact on how you grow your reserves.
Your primary aim must be to build your reserves as quickly as possible. You don’t need to use a budgeting program to achieve this aim.
Consider the concept of “Paying Yourself First”. Take 10% – 20% or more from your salary before you consider paying any other bill. If you leave it to the end you won’t have it available. Have your employer deduct it from your salary if possible and pay it to a separate account. This may be additional to any direct deductions for your home loan or fixed loan repayments.
Learn the Investment habit. Frequent savings wisely invested will pay enormous dividends. Einstein, one of the greatest minds of the 20th century, considered “compound interest” as one of the wonders of the modern world.
All of the following tips are really ways to build your reserves and manage risk.
Tip 2: Your budget must consider ALL your incomes and expenses.
Often it is more important to ensure that you have identified all expenses rather than have each one correct to nearest cent. Give particular importance to big one-off payments like insurances, interest-free loan repayments etc.
Missing the final payment on an interest-free loan can be a killer. Some loan contracts allow you to be charged penalty interest on the full amount of the loan, for the whole time of the loan, even if you underpay the final payment by only 1 cent!
Tip 3: Use the Future Provisions extension.
Unfortunately, there are some expenses that can’t be budgeted for because you don’t know when they will occur. One example is the battery in your car – when will this need replacing?
You need to consider all of these one-off expenses that will eventually occur, and ensure that you will have adequate cash reserves to meet them. See the topic Budgeting for one off expenses for some ideas.
Tip 4: Don’t get bogged down with too accurate a budget.
Having said this accuracy is important. If you set too tight a budget (by not including legitimate items) you will be continually exceeding it, you may become discouraged & you may throw the process away.
You must be realistic – particularly when starting with any budget program.
If you set yourself too generous a budget you will never know how much you are wasting & could really save.
The best is to start with what you are doing & give yourself a month or two to “fine-tune” your budget. Ensure your budget is up to date and always use the Cash Curve BEFORE making any significant purchases or changes.
Tip 5: Remember a budget is only a forward guess. Monitor your spending frequently
The aim is to make it the best guess. It will be wrong so monitor frequently – ideally weekly. Remember, it’s easier to stop yourself “blowing your budget” rather than having to fix the mess after you have overspent!
Use the Budget Monitor to track your spending.
Tip 6: Ensure you know what is in the budget.
This may seem silly – but there are many Budgets Get Real users with mixed personal & business usage. You need to be clear of the boundaries between your business and personal use. Use the category options to decide what is included in your personal budget.
If you get a bill to pay, check that it was included in your budget. If not you may want to include it so future expenses are not also missed. This is particularly important for the first year – until expenses like insurances (which you may have forgotten about) have been entered.
Tip 7: Check your statements & charges.
If there is a problem contact your bank immediately and set a reminder in the program. Every so often we see reports in the media of banks overcharging customers on interest and charges. The unfortunate customers then have to go through the process of recovering the excess charges.
Why go through all this hassle? Carefully scrutinize all fees and charges when you import and categorize your statements. If there is a problem FIX IT IMMEDIATELY. There are many free calculators on the internet to exactly determine what your interest payments should be.
Tip 8: Use the Cash Curve to check affordability of items before purchase.
The is especially important for interest free loans. You should enter budget rules for the initial deposit, all repayments and for the final payout. Check the Cash Curve before purchasing.
Use Budgets GetReal to suggest savings targets & reduce credit card limits. Consider increasing card limits if you may be approaching a liquidity limit ONLY IF YOU CAN HANDLE THE INCREASED CREDIT.
Tip 9: Understand the core principles to Building Wealth
This is is not really a step in the budgeting process – but it’s far too important not to be mentioned. It concerns you and how you relate to money. Some people call it “getting a financial education”. It is a skill definitely possessed by the financially successful.
Take the time to follow the events that will effect your personal finances. We are in volatile times – the likes of which we haven’t seen for more than 20 years.
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