- You must be kidding, you cannot buy this.
- You are spending too much.
- I cannot believe I’ve exceeded my budget for this month.
- OOps! The account is in overdraft.
- I have to borrow to cover these expenses.
Does this sound familiar? Millions of Americans struggle each month to cover their living expenses and honor monthly debt payments timely or default in some cases.
In his popular quote, Frank A. Clark states, “We didn’t actually overspend our budget. The health Commission allocation simply fell short of our expenditure”.
Whilst this quote might be partly true and apply to most of our budget cases, it’s the mindset most of us adopt to give ourselves the excuse and rid our minds of the guilt of mismanaging our finances and I don’t count myself out.
To start putting ourselves on the right footing, we need to ask:
- Where have we been with our finances?
- Where are we now with our finances?
- Where are we going with our finances?
These questions directly link to my previous blog on financial vision, “No Vision No Crown”. Once our vision is clear, then there is the need to create a personal budget that takes inventory of all the variables that constitute our cash inflows and outflows. The idea of budget creation shouldn’t be just a rudimentary exercise just to make us feel good that we did “something”. However, it should be created within a grand strategy of improving ourselves and our family, motivating us to expand our financial options and helping to make other lives better. Any budget goal that fails to incorporate this principle would be fruitless and would only make us stressful and miss the opportunity of turning the table.
A personal budget is therefore a tool that helps us to capture our cash inflows and outflows whilst at the same time giving us a value to control our spending and also given a sense of our residual income that can be allocated for investments and savings. Not only should a budget control our spending but it should invigorate us to increase our streams of income and our retained earnings for further investments.
For a starter, a good budget should have the following criteria.
- Simple and readable
- Capture all revenue and expense variable
- Replicated easily period over period
- Give a sense of our financial position
- Objectives,visions,financial policies defined
- Success and failure criteria defined
- It should be portable
- It should inspire creativity to expand financial options
The budgeting process should be personal; and should be looked at as an integral part of other part of the human whole. There are several tools on the market that helps create budget easily. I normally create one myself because most do not meet the criteria I underlined earlier.
Changing your mindset,creating a financial vision and being fully aware of how other aspects of the human whole is tied to your financial vision and developing a personal budget that seamlessly integrate the former and focus to expand financial options is the road map to success.
Some of the important consideration in budget creation should be hemmed on the below questions.
- What is the vision and goal of the budget?
- How is success defined?
- When is the best time to create a budget?
- What time horizon(month-month or yearly) should the budget span?
- What tools should be used?
- How do you execute and control your budget to meet goals?