Business

A better way to budget

Claudja
Williams

Sunday, September 17, 2017

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So you have read every article you could find about budgeting and saving, and you have tried almost every recommendation out there, but somehow you have never gotten it quite right – or if you did, it didn't last long.

The fact is that budgeting is key to good financial management which is the key to great financial success. These are my tips for improving your budgeting skills:

BACK TO BASICS

Educate yourself. Learn as much as you can about banking, budgeting and financial management. I am by no means suggesting that you need to become some sort of financial guru, but it is important to have some basic knowledge to guide your decisions and to evaluate the quality of advice given to you by professional financial advisors.

THINK LONG TERM AND STRATEGIC (DRAW UP THE PLANS)

You will be more likely to stick to your budget if you are working towards a clearly defined financial goal like buying a house and/or a car or saving for retirement (the latter should always be a part of your budget).

In making your budget, think about those larger financial goals you would like to achieve and how you would like to go about achieving such. You may consult a financial advisor to guide you in this process. You can get free personalised financial advice from any registered financial institution, but don't let them pressure you into any products quite yet.

GET SOME TOOLS

It is a good idea to use some tools to assist you with planning and sticking to your budget, and to help you get a realistic view of your current financial situation.

A simple Microsoft Excel tool should be sufficient for recording all your monthly income and expenses. Other tools you can use are a calendar on your phone or computer to record when major payments such as loans or insurance premiums will fall due. This will help you to ensure that you are keeping up to date with your liabilities.

QUALITY ASSURANCE

You have now completed your budget template nicely, but is it accurate? In planning our budgets we often tend to overestimate our income or underestimate our expenses. Sometimes the truth is just hard to face – it's hard to believe that you have been spending so much money on entertainment or gas or electricity. But the sooner you face it, the sooner you can correct it.

Go back through your budget template with a fine-tooth comb and ensure that the numbers you have inputted are accurate. Validate the numbers using your last few pay slips and utility bills. You may also want to review your bank account transactions to validate all those “miscellaneous” expenses.

Ensure that your budget outflows include any funds you will need to save monthly in order to achieve your established financial goals

BUILD SUPPORTING FRAMEWORK

Now that you have established your budget which includes any regular savings towards your financial goals, it is time to put in place some supporting activities which will help you stick to your budget even when your will is weak.

Sign up for an online banking facility if you don't already have one in place. This will help you to:

1. Conveniently keep track of your spending and your account balances

2. Save money on routine transactions such as bill payments and funds transfer between your bank accounts

3. Pay your bills on time

Set up standing orders for your fixed savings towards your financial goal. This is key. This will take away some of your control which will ensure that you stick to your budget over the longer term

Establish an investment account to receive your standing order savings. Ensure that the funds are not transferred to a savings account. This is because savings are too easily accessible and too liquid and will be disadvantageous to you in two ways:

1. In weak moments it will be too easy to remove funds from your savings account, which will delay the achievement of your goals

2. The interest rates earned on savings accounts are very low, resulting in negative returns after account for inflation

Schedule automated payment of your loans and insurance premiums on the due date either by setting up standing orders or a Pre- AuthoriSed Payment (PAP). This will ensure that your payments are made in full and on time.

FINISHING TOUCHES

After you have completed the activities above, you are basically in a position to maintain your budget with very little sustained effort. You need to be prudent and use the tools and framework you now have in place to keep track of your account balances to ensure that your liabilities are being paid and that you are on track for achieving your financial goals.

Good luck!

Claudja Wlliams works as a consumer advocate to the financial sector. The views expressed are her own.

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