Budgeting is perceived to be a very boring topic. It is not half as exciting as investments; creating additional income streams or financial freedom. Budgeting is however the foundation layer for financial fitness irrespective what your financial goal might be. Here are 7 steps how to budget effectively:

  1. A budget is not effective if it lives in your head only. Write it down or compile a budgeting spreadsheet. Review and update it annually or as your circumstances change.
  2. A budget should contain both income and expenses. The end goal of a budget is to monitor how big the gap between your income and expenses is; and to increase this gap over time.
  3. Budget for savings. It will help you to adopt a savings mind-set if you know a certain portion of your income is allocated to savings and you cannot spend it.
  4. Unforeseen expenses can often be the culprit of destroying your good intentions with your money. Budget for unforeseen expenses. If something unforeseen happens, you are covered or at least to a certain extent. If nothing happens that month, save that money to build up your emergency fund.
  5. Don’t forget to include annual expenses like licence renewals, birthday parties or X-mas gifts in your budget.
  6. Remember to budget for inflation, annual increases and potential increases in interest rates if you earn investment income or have debt to repay.
  7. A budget becomes a truly effective financial tool once you start monitoring your actual income and expenses against your budget. Analyse the variances and ensure you can explain the variances. This exercise can provide you with a lot of information to make better financial decisions.

If you don’t have a budget, today is the best day to start implementing a budget. If you already have a budget, make sure you do in fact apply these steps in your budgeting process. An effective budgeting process will definitely contribute towards achieving financial fitness and stability.

 Written by Ronel Jooste

CA(SA), Financial Consultant & Coach, Blogger and Speaker

Contact Ronel: ronel@financiallyfitlife.co.za

For more information about my financial wellness programmes visit the website.

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