WITH prices increasing every day and our disposable income shrinking due to devaluation and inflation, one needs to ask "how am I going to make my money stretch?" One way of taking charge of our finances is to make a personal financial plan. So what is a personal financial plan? Is it different from a budget? No, it is not different, but most people shy away from the word budget.
Simply put, everyone should have a financial plan. Why, you ask? If you do not, how do you know how much money you have? How will you plan for your future, pay off your debt and save each month? You need a way to budget your expenses so that you will spend less than you earn. If you don't, there will be a time or two that you'll run out of money in the checking account, or, you'll be late with a payment, or, maybe you just come to realise that you are not getting anywhere, financially.
All is not lost. If you are reading this article it means you are probably concerned enough to want to at least try to budget. It really is not that hard to do. You can begin by reducing wasteful and impulsive purchases and separate your needs from your wants. So how do I do that? Start with identifying your expenses and put them in categories. From your expenses, develop two separate budget lists; one for essentials and the other for extras. Items in your essential list would be, for example, rent or mortgage payments, transportation, utilities (water, light) and food. Extras would be considered gifts, new furniture, appliances or dining out, to name a few.
Look at your list with a view to finding expenses that you can cut back and put a star next to these items for easy identification. If you can, estimate what you spent over the last few months by going through your receipts or records so that you can track how much you spent on essentials or extras. Total the funds spent on essentials and extras separately. This exercise will help you to cut back on non-essentials if needed. Subtract the amount spent on essentials from your monthly income, and if you have money left over subtract the extras from that amount. If you have a negative cash flow then something has to give. If you still have money left over, that is great! You will need to invest these funds wisely, so seek professional help to make your money work for you. If one of your high priorities is to put more money toward debt repayment, then use some of the extra funds to reduce your loan balance.
Here are a few suggestions for solving your shortfall. Review each of the needs categories and consider ways to cut down on unnecessary expense. One way is to shop around for better premiums on your insurance coverage or team up with friends or relatives and buy groceries in bulk or wholesale. You may be able to walk to and from work some days and save on transport costs or if you can get a ride with a co-worker who lives near you. If possible you may have to work overtime, consider a part-time job or if you have a skill that will assist in making additional income. To cancel your insurance coverage or to stop saving for that "rainy" day should only be a last resort.
Budget for expenses that happen only a few times each year like gifts, car, house insurance or doctor's visits. Pay for these as they occur, or if you are on a tight budget set aside additional savings ahead of time. Christmas comes at the same time every year, so plan ahead by purchasing those gifts on sale and do not get into debt.
For those who earn an irregular income, it can be more challenging, but still feasible. If you have been in the same line of work for some years or months, then budget around your minimum take-home amount. If you make more than you have budgeted for, make good use of the funds as mentioned herein.
Starting today, make a commitment to take charge of your financial future.
Deborah Vieira is a Wealth Advisor with Stocks and Securities Limited and can be contacted via firstname.lastname@example.org.