’TIS the season for budgets, not just of the national variety like the one presented in Parliament on Thursday, but also personal budgets. Evaluate your current position Setting Your Goals Execute your plan

Although most persons learn about the importance of budgeting from as early as high school, unfortunately it only becomes practice for many of us in the face of our own financial crisis. And with the domestic economy tightening like a wrench on a stubborn bolt, many of us are just now drawing up the Excel spreadsheets to prevent our finances from crashing — I personally know at least three persons.

Sunday Finance has decided to collaborate with wealth management company Scotia DBG Investments to guide you in the creation of a personal budget which will help you meet your short-, medium- and long-term objectives such as investing, retirement planning, borrowing and paying for your children’s education.

According to Dave Dixon, Scotia DBG assistant vicepresident of sales and service, there are five critical steps that the company recommends persons to follow when creating a financial plan:

Dixon says that it is very important that you detail all your assets (things you own) and liabilities (amounts owed) as this will help you determine whether you have positive or negative net worth (The difference between what you own and what you owe). Additionally, he says, you should list your liabilities in order of interest rate to determine the cost of each debt.

“It is important to consider your age and how much risk you can take as this will have a significant impact on your plan,” he says.

Dixon says it is now very important that you establish “clear and realistic goals” with specific time to achieving them, emphasising that you must prioritise them by your most important and most urgent. Most persons dream about, among other things, one day owning a home, driving a decent car and ensuring the best education money can buy for their children.

It is important advises Dixon, that one of the first goals you should work on is your emergency fund because in life you must expect the unexpected.

“This should be at least six months’ salary and increases along with your income,” he says.

Next up, Dixon explains, is for you to create a plan to help you know exactly how much you are spending and help eliminate unnecessary expenses as well as identify funds available to put toward your various goals.

“Now that you have establish your goals you should create the plan to achieve them,” says Dixon, adding that “putting them on paper is not enough to achieving them.”

“Your plan may be to pay off a credit card or cutting your expenses to find money to save for retirement,” he continues. “In any case the best thing to do at this time is a monthly budget of your income and expenditures.”

Dixon says persons must devote some 44 per cent — the biggest chunk — of their net monthly income to housing and debt, such as mortgage and rental payments. The second-biggest allocation, he says, should go towards groceries — 20 per cent of net monthly income.

Of great significance is savings and investments, which Dixon advises should be no less than 16 per cent of your take-home pay. This is particularly important for the aforementioned emergency fund, retirement and education savings.

At least 12 per cent of net income should be earmarked for those dreaded utility bills — electricity, water et al, says Dixon. While you are at the mercy of this unavoidable expense, remember to always employ prudent cost-saving measures to limit the burden. Electricity cost normally accounts for the brunt of utility expenses for Jamaicans, and residential electricity prices are expected to rise this year as oil price is widely expected to go over US$90 a barrell — world oil prices traded above US$85 a barrel on Friday — year-end. Save on electricity bills by installing energy-saving light bulbs — found at most major supermarkets — and unplugging energy-sucking electronic appliances such as cellphone chargers and microwaves. You can also cut your water bill by not leaving the tap running while taking a shower, brushing teeth or washing dishes. And be sure to be aware of drips and leaks.

Finally, Dixon says at least eight per cent of your net income must be allocated towards miscelleneous expenses.

After creating the plan, Dixon emphasises that it is critical that you act now and not procrastinate. Additionally, he says, you must be very disciplined in your approach.

“Avoid impulsive shopping or other decisions that could derail and delay the achievement of you goals,” says the wealth advisor.

Monitor and review

Scotia DBG recommends that you review your plan at least twice a year, with an aim to examine your strategy and see if there needs to be any adjustments as there are changes that could affect the outcome of your plan.

“This should also be done when market conditions change to identify good opportunities,” he added.

Good luck.