- How to monitor your personal budget: 12 helpful tips
- How to create a personal budget in 5 steps
- Is there a good time to create a personal budget?
- Features of a good personal budget
- Introduction to budgets: Why you need a personal budget
Is there a good time to create a personal budget? Yes! and the best time is now! If you are reading this, start a budget for the next month if you don’t have one.
Create a budget calendar
Taking a cue from how organisations build their budget, a good time to create a personal budget is before the start of a new calendar year. You should have a budget planning cycle/calendar which begins months before the start of a new year.
It doesn’t have to be an overly formal process, but it is nice to set some time aside to think about how your career and current budget is progressing. Then start formulating your budget for the coming year.
Most organisations go beyond the annual budget to produce multi-year budgets. You can do this as well for yourself and household. Multi-year budgets are particularly useful to monitor savings/investment targets that will take a number of years to achieve.
If you are starting your budget planning mid-year, follow the same process for the remaining months for the year. Then plan in some time to start your annual budget for the following year.
Budget periods
Monthly– a lot of bills are paid monthly, so the starting point is to set a monthly budget.
Yearly– I tend to set a monthly budget for the 12- months of the calendar year with an annual summary. I prefer this as cash-flow can fluctuate during the year. Also, there are annual expenses that are incurred at different times of the year and I like to capture it all at once. If you have a savings/goal target for the year, an annual budget will be more useful than setting one on a month to month basis.
Multi-year– It is possible to build a 2-5 year budget based on what is known now. This is useful if you are working towards a goal beyond a year, and can help you figure out what changes to make to achieve your goals. For example; it might be obvious from doing your budget that unless you look for ways to increase your income or reduce costs, certain goals will be difficult to achieve.
Conclusion
Someone might say there is no point in doing a budget given how quickly things can change. For instance, no one had an idea of how different the year 2020 would turn out and a pandemic is something you don’t foresee. However, it is still important to do this.
A budget is a forecast of financial events. It provides a good framework for how your finances will go and should be reviewed to reflect your current circumstances should things change.
Chances are a lot of your expenditures like rent/mortgage and bills will not change drastically. Income, however, might do. However, if you have budgeted and saved into an emergency fund, this will provide a cushion for sudden changes even if it’s for a short time. A budget is therefore very crucial.
Alan Lakein