Budgeting- is it important in wealth creation?

“We must consult our means rather than our wishes.” 
  George Washington

The idea of budgeting for most people is that of limiting and constrained use of money, it is very uncomfortable. No wonder our default position is…….  It should be avoided at all costs!

Nothing could be further from the truth, because if done well, a budget will be one of the most important tools that will guide you towards financial freedom.

Today I would like to take up the challenge of convincing you of the importance of budgeting and hopefully get you motivated enough to have one…. and be committed to it too.

My definition of a budget is the sharing out of your income to your various needs and wants. The end game of a budget is to help you navigate through life’s seasons. Though it’s a short-term plan, when you follow it over a period of time,it leads to the achievement of a comfortable lifestyle.

 A budget helps you direct your money to what you value. It follows then that if I take a peek at your budget, i will easily tell what is important to you.

Naturally, in setting aside money to meet various expenses, there are those expenses that you must meet to continue living in a civilized society like food, shelter and clothing. If you have children there will school fees and with that uniforms and books, you catch my drift. However, even in these expenses which we call basic needs, there is a preference on, the kind of food we want to eat, where we will live and what clothes to wear. It is important to synchronize these preferences with your goals.

One of the key things that you should remember when budgeting is that YOU determine what is important to you. So, your budget needs to be as comfortable to you as possible.

The limiting factor, as always, is usually the money coming in or your income (there is no shortage of what you would want to buy given all the money in the world) , so you will have to work out the budget within the limits of your income.

Secondly, you can vary it if it is not working for you. However, for you to have a lasting impact it’s good that you do not vary it very often.

So, who should budget? I will say, everybody. Even the school going children who get an allowance must budget. We do not have an endless supply of money and so we must allocate it in the most efficient way. Think about it in this way, if the world governments have to budget and even subject those budgets to a legislative approval process, then how important is such an exercise in our personal lives?

Your budget MUST balance, and by that, I mean the revenue side (income) must equal your payments side (expenses) and as part of your payments, savings and investments should be included. In accounting, it’s called balancing the Debits with the Credits. This balancing act is very crucial because if the expenses are higher than your income obviously you will have to bridge the gap by borrowing and this can be a perpetually spiraling hole.

And so, comes the benefit of a budget; it helps you live within your means. Mind you, it doesn’t mean you cannot do anything about your current earnings, in fact, it should propel you to find ways of increasing your income so that you achieve your goals and dreams much quicker.

So now that am done convincing you of the importance of budget, how should you do it. My personal budget roughly looks like this…..

60%  Living expenses (All my monthly /quarterly recurring expenses; Rent, food,fuel, etc)

23%  Savings & Investments ( this is money I put towards growing  wealth)

5% Entertainment (I keep this aside for the annual holiday or dinners etc)

12% Charity and gifts, tithes and offerings.

This is what guides me on a monthly basis,  and I try as much as possible to stick to it. I know some percentages are weird but hey it works for me!

There are many tools available to assist you with the process of budgeting, I use good old-fashioned Excel spreadsheets. However, you can use an app and there are quite a few, according to Investopedia the best app to use for budgeting currently is Wally. For tracking my expenditure, my go-to app is Expense Manager.

If you choose to use an app to help you budget or track your expenses, don’t be obsessed about it otherwise you can become overly legalistic in keeping track on yourself. Use it as a tool that helps you in setting your priorities straight and allow yourself time to get in the discipline of budgeting so that you don’t easily get frustrated and go back to your old habits.

Just as with savings, set your goals at the beginning so that as you budget you know what you are working towards, it will give you a strong sense of purpose and it will be easier to stick to the budget.

Let’s begin our budgeting journey together. I can’t wait to hear your story.