The Budgeting ParadigmBy: Asha Dalley, Senior Account Executive Posted:
In the words of Benjamin Franklin, “Beware of little expenses, a little leak will sink a great ship.”
Budgeting is the process of creating a plan to spend money. The one thing that many successful individuals and companies have in common is that they budget their money. There should be a connection between making money and making a budget. However, many persons tend to avoid budgeting. Hence, when most persons think of budgeting, they tend to think of it in a negative light. It could be construed as a spending plan. This may seem less restrictive, and help you to think about the things it will allow you to buy.
By following the 50-30-20 rule you can make budgeting much easier. Fifty percent (50%) should be allocated to your needs, thirty percent (30%) should be allocated to your wants and twenty percent (20%) should go towards savings, investments, or paying off debts.
The first step is to separate your needs, from your wants; making your needs the top priority and allocating at least twenty percent (20%) of one’s income to savings, for an emergency, and most importantly, investments for your long-term goals.
Needs are those bills that you absolutely must pay, and the things you need to survive, such as rent, or mortgage, car payments, groceries, insurance, health care and utilities. This category, should not include, for example, Netflix and Starbucks. At least half of your income should be used to cover your needs. Once you have covered your needs, you should feel less pressure, and more clarity, in looking at your wants.
Wants are things you spend money on, that are not essential to your survival; these make your life more enjoyable and entertaining. These include going to the movies, a sporting event, or the latest electronic gadget. If you commit to delaying your wants much longer than usual, then the result is that, over time, you surprisingly will accumulate much more in savings.
Expenses can be divided into fixed and variable categories. This will assist you with knowing exactly what your costs will look like every month.
It is also crucial to get expert advice from a licensed Financial Advisor to assist you with your financial plans and keep you on track for future goals such as retirement.
The key is to readjust your wants and find alternatives that cost less than what you are currently spending. Each time you reach a financial goal, you can reward yourself with something from your want list.
The next level is the empowerment stage, where you can transfer a portion of your savings to investments, to help you achieve longer-term objectives. This simple shift in our approach towards budgeting is proven to make you wealthier. Consistency, discipline, and a passion to achieve more will result in your success.
Stay consistent in what you want to achieve and when obstacles come up just keep pressing ahead.
“You don’t have to see the whole staircase, just take the first step.”- Martin Luther King, Jr.