This is part two of the budget series. I will be focusing on the features of a good personal budget. A budget is a plan that needs to be put into action. It is not enough to make a plan, it is more important to keep to it.
Our goals can only be reached through the vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.
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A budget is a tool that will help you achieve your financial goals and as with all plans needs to be SMART!
Table of Contents
Specific
One of the features of a good personal budget is that it should be specific. Be specific with your goal! your budget should help you achieve your financial goals and be clear what these are. If your aim is to set aside money for a holiday, a car, emergency fund, to be debt-free, you should structure your budget to achieve this. Your budget should not just be a log of what you spend, it should be what you use to tell your money where to go.
Measurable
An important aspect of budgeting is variance analysis. This is when you compare your actual expenditure to your budget to check if you are on track. The budget setting process is a target setting process. Financial targets compared to non-financial ones are easy to measure. So it should be easy to compare your actual spend to the target spend.
Achievable
Be realistic, don’t exclude expenditures that are important and necessary from your budget just to make it balance. And don’t include a lot of slack. Slack is when you underestimate your budgets so that it is easy to achieve. For example, you build slack into your budget by adding a large contingency pot to allow for impulsive spending. A little discretionary spending is great. But if you can save a bit more, challenge yourself a bit more.
Income is as important as expenditure in achieving financial goals. A lot of times we focus on cost control. However, one’s income needs to cover basic needs like housing and food. Sometimes it is just that case that you are not making enough and it is important to review this and create a plan to increase your income.
Relevant
Depending on the budgeting strategy you adopt, your budget must be relevant to your goals and needs. I prioritize needs e.g. housing and utilities), giving, and savings. Wants and anything else depends on affordability and my goals. Some budget approaches recommend saving or paying yourself first before anything else. This only applies if your basic needs are sorted. It doesn’t make sense to save while you are struggling to put food on the table. You should also focus on important goals before spending on luxury. For instance, if you are working towards financial stability, it is important to have an emergency fund. I recommend working on saving this up before budgeting for expensive holidays or buying luxury items.
Timely
Your income and expenditure budget is short term and should be month by month for a year. You can also have long term budgets, for example, a 2-5 year rolling income and expenditure budget. Your future budgets are forecasts(predictions). It is difficult to determine what your finances might be several years down the line so you will need to update this regularly to reflect your current situation.
3 thoughts on “Features of a good personal budget”
This is very well articulated, short and incissive, and would be greatly helpful for achieving focused goals.
Thank you so much sir
This is awesomely beautiful and will help me greatly to achieve my desired goals! Looking forward for more Dearest Tolulope. God bless you richly for this great piece.
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