The Importance Of Budgeting

“If you don't know where you are going, any road will get you there.” - Lewis Carroll

The first and most important step to effective financial planning is developing and implementing a budget. What is a budget or budgeting?

Budgeting simply means not living beyond one’s means.

The term budget has different meanings for different people. From a family's perspective, a budget is something that is used to streamline expenses in relation to the overall income earned.

As the Government of The Bahamas embarks upon debate on the Budget for the year 2009-2010, it is also important for us as individuals to know what the national budget means for us as citizens.

From a Nation’s perspective, a budget generally refers to a list of all planned expenditure. It is the framework that defines how prices of essential goods will increase or decrease, what kind of taxes will be levied and how the overall funds of the Government will be spent within the budgeted period. With the shortfall in revenue collection predicted by our Prime Minister, painstaking decisions will have to be made during this recessionary period if we are to stay afloat as a nation.

In the May 21st edition of The Nassau Guardian, the headline read “Govt Budget Cuts LOOM”...Revenue shortfall creating pressures.” It went further to say that “at the beginning of May the government was planning a 7 percent ‘across-the-board budget cut, which would include personnel cuts.” What does this mean for an individual? Will I still have a job? How will I pay my bills? All important questions!

Whatever one’s perspective, budgeting is the roadmap that provides the guidance to attaining the ultimate goal of financial security.

As individuals, we often complain about the high cost of living and insist that it makes no sense to budget because we don’t earn enough money to think about discretionary spending. Many of us believe all of our problems would be solved if only we earned just a little more. However, what we must remember is that it’s not how much we earn, but how we use what we earn. If your expenditure exceeds your income by even one dollar, you are living beyond your means – whether you make $10,000 or $100,000.

Budgeting is the systematic allocation of one's resources to a potentially unlimited number of needs and wants. We in The Bahamas are looked upon as a Nation of Spenders; we live for today and let tomorrow take care of itself. Budgeting your income can help you better control how your hard earned dollars are being spent.

Some form of budgeting is a necessity if you hope to meet short-term or long-term financial goals. One’s ability to control debt is often a good measure of the success of one’s budgeting methods. For some, a budget is a detailed process of tracking each income source and purchase. For others, it is as simple as setting aside savings first, then using the remainder for day-to-day living expenses.

A budget forces you to get your spending under control, to live within your means. And if you have debt, as most of us do, living within your means is exactly what you’re going to have to do. Only then will you free up resources that can go toward eliminating your debt and building some form of savings.

So, how do you make a budget? All you need is a notebook, a pencil, and a calculator. Sit down and list everything that you spend your money on in a month. Everything!! You need to know exactly where your money is going. Keep all of your receipts. Analyze your monthly bills. You know what your mortgage, car payments and utility bills are but it’s the money that seems to slip away from you with nothing to show for it that you really need to concern yourself with. This is the area that you need to track. Once you’re aware of what you’re spending your money on, you’ll be able to put it down on paper. You’ll probably be surprised at the amount of money that’s spent on trivial, or at least unnecessary, items.

Allocate your available funds to cover your necessary bills first. As they’re paid, keep track of them on your budget sheet. Do not allocate as much funds for the miscellaneous expenditures as you have been used to spending on them. Then once you’ve spent your allocated amount, don’t spend any more. Instead of spending $50 a week on lunch, bring lunch from home. It takes discipline, but it’s well worth it. The money that you’ve saved can go toward paying down the principal of your debts, or funneled into a savings or investment account.

A number of people have learned to budget and have realized the importance of it only after falling into serious financial problems. Don't make the same mistake! It is very easy to spend endlessly without keeping track of how much it is that you can actually afford to spend at a particular point in time.

It will be difficult at first, but you’re changing your mindset and attitude towards how you control your finances, and that takes time. The longer you do it, the easier it becomes. With your spending under control, you’ll be well on your way to meeting your long-term or short-term financial goals.

“PREPARE A BUDGET. IT’S NEVER TOO LATE TO GET STARTED!”