A popular catchy reggae song my money ha ha comes to mind each time the topic of money is now being discussed. The singer points to the fact that he has so many riches that even his money is laughing. Although the notion of laughing money is quite silly the concept should be adopted when budgeting. With any budgeting procedure we put savings aside for the unexpected, consider how exhilarating it would be when the time comes to hear our money go haha

A budget is a powerful tool you can use to help you take control of your money. Some people are of the opinion that budgeting is too complicated or they have no idea where or how to start. The truth of the matter is that budgeting helps you to understand where your money goes and to help keep control of it.

There are many persons that worry that the unexpected bill or events will derail their budget. You can’t possibly know how much you are going to need to cover your unexpected (surprise) expenses but one thing for sure, however, is that you need to create room for it in your budget. The emergency fund can be created by dedicating a section of your budget to unknown or unexpected expenses. By carving out a phantom category for emergencies in your overall budget, you will be prepared to address sudden costs when they occur.

In putting aside a portion of your income, the first option that should “pop out” is investments. In investing for the unforeseeable future, there are a number of factors to bear in mind. The first being how safe the investment is. Economists often remind us that there is no such thing as a risk-free investment. While there are no hard and fast rules, if you are investing in debt instruments then at the very least you should check the credit ratings assigned to that debt by the rating agencies (like Moody or Standard and Poor). Get as much information as possible such as the full details on the products and services; what are the underlying securities, what tax rules apply, what penalties apply, if any, for early maturity. This will give you a clearer picture as to the type of investment you will be buying into.

The ease with which the investment can become liquid is another issue to consider. When putting aside funds for uncertain events it’s a tough decision to make but it’s best to consider how liquid the investment is. At the end of the day an investor wants to be able to cash in the funds when the time comes knocking. Persons may be caught between a rock and a hard place as great investment opportunities can be seized during a down market, however, these investments, such as stocks and bonds tend to be long-term in nature. In order not to be left behind with a great opportunity, investors should look at diversifying their portfolio to include not only stocks and bonds but short-term alternatives and this is where a good financial advisor is welcomed.

What is the expected return on the investment? This question is easier to answer for savings account, Repurchase Agreement or Bonds than for stocks and mutual funds which do not offer set rates of return. For these investments, it may be more useful to look at historical returns in order to make an estimate of the likely future returns. With a return in mind, it makes the planning process a little easier to navigate.

Not only is it important to understand what investments you own but what insurance coverage, if any, is available. Should the unforgivable happen and the investment house find itself in financial problems is there any recourse? What steps should be taken to recover your funds if the company goes bankrupt?

Don’t get caught with dangerous loans or bad debts that will cost you an arm and a leg, make the necessary preparations to cover the unexpected as best as possible. Experts also suggest you review your budget every year or whenever you experience a significant change to your income or expenses. As you become more familiar with budgeting, you may wish to add a section for cost of living to cover increases in the cost products and services.

Dian Blackwood is a personal financial planner with Sterling Asset Management Ltd. Sterling provides medium to long-term financial advice and instruments in US and other world market currencies to the corporate, individual and institutional investor.

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