We live in a time of absolute
uncertainty where so much of what we have trusted in
seems to fade before our very eyes. The entire
globe is experiencing something many of us never
thought we'd ever experience - a global recession.
While many argue whether these times can be compared
with the great depression that started in October
1929, the fact remains the same - we are in economic
turmoil and tight disciplined
budgeting has become
even more important than ever. So let us take a look
at the basic principles in setting up a budget.
For starters, our goal is to ensure
that we have a positive cash flow. Our cash flow is
the difference between our income and our
expenditure:-
|
Cash Flow = Total Income - Total
Expenditure |
In creating our budget, we must
realistically match all our monthly expenses against
our monthly income. The primary source of
income for most of us will be from our jobs; our
monthly salaries. Our expenditure will
generally take the form of
|
To our right is a sample
for someone earning two salaries
totalling 5,250 per month. This is a
simple layout to use, where you list all
your sources of income first, get a total on
that, then you list all your expenditure
below and total them as well. To
determine what your cash flow is, you
subtract your total expenditure from your
total income.
As mentioned earlier, your
goal is to have a positive cash flow.
If this were negative, then it would mean
that your are spending more than you are
earning, in which case you will be either
constantly dipping into your savings or
constantly burrowing funds. This is
not an economically safe position to be in
as it is a highway to financial disaster.
If your budget has a negative
cash flow, then you should look at lowering
the cost of the expenditure that are really
not needed, but are rather 'nice to have'.
Some of these from our list are
entertainment, vacation and gifts for
example. Now again, for this to really
work, you must keep it real and you must
stick to your plan. You must
discipline yourself to spend only what is
necessary. You must be clearly able to
separate your wants from your needs. |
|
Income |
|
|
Salary 1 |
2,500.00
|
|
Salary 2 |
2,750.00
|
| |
|
|
Total Income |
5,250.00
|
| |
|
|
Expenditure |
|
|
Housing Mortgage/Rent |
1,500.00
|
|
Utilities |
450.00
|
|
Food |
375.00
|
|
Transportation |
350.00
|
|
Property Taxes |
250.00
|
|
Medical |
170.00
|
|
Educational |
350.00
|
|
Child Care |
250.00
|
|
Credit Card / Loans / Hier Purchase |
375.00
|
|
Insurance |
75.00
|
|
Charity |
150.00
|
|
Entertainment |
200.00
|
|
Vacation |
250.00
|
|
Clothing |
100.00
|
|
Gifts |
100.00
|
|
Misc |
75.00
|
| |
|
|
Total Expenditure |
5,020.00
|
| |
|
|
Cash Flow |
230.00
|
|
If all else and you still have a
negative cash flow, then you will have to look at
what other expense you can possibly reduce.
This may mean moving into a smaller apartment,
changing your diet so as to lower the cost of your
groceries; whatever it takes to get your cash flow
positive.
Now you will notice that savings have
not been included. In creating your budget,
you should always cater for some part of your income
going towards your savings. That way you will
be better able to cater for a rainy day - when it
comes. So what ever positive cash flow you may
have, you should use to boost your savings and/or
lower your debts. Practice the discipline of
not spending it on things that are not necessary.
