The Art of Budgeting for a stress Free Life

The 2nd habit in Stephen Covey’s popular book, The 7 Habits of Highly Effective People, is to ‘Begin with the End in Mind: Envision what you want in the future so you can work and plan towards it'. We all look forward to time to go and recharge…a holiday that is. But how can we enjoy a stress free one?

Simple logic

I had the privilege of talking to a group of about 40 teenagers these last December holidays about financial planning. We discussed Earning, Saving, Investing, Giving and Spending. I told them it’s good to save with/for a purpose…that way you will not be tempted to use the money other than for the intended purpose. One of the lovely girl said she saves Ugx20,000 a month and she would like to buy a laptop whose price was Ugx1,200,000. She wanted to acquire the laptop in the next two (2) years.

Doing the maths, at her current level of saving, it would take her 5 years to get the laptop! Therefore if she really wants the laptop in 2 years, she would have to increase her saving to Ugx50,000 per month. Is this feasible? That depends….is she able to raise her earnings to be able to increase her level of saving? Alternatively, is she able to reduce her current level of expenditure to be able to save more?

Practice makes perfect!

All these would be possible with a simple tool called budgeting. Someone said, a budget is a plan in numbers. Below are some budgeting basics

1. For one month, keep track of all your expenses. You don't have to limit yourself; just get an idea of what you spend money on during any given month. Save all your receipts, make note of how much cash you need versus how much you expense to credit cards, and figure out how much money you have left over when the calendar turns.
2. After the first month, take stock of what you spent. Don't write down what you wished you had spent; write down what you actually spent. Categorize your purchases in a way that makes sense to you.
3. Now, write down your actual budget. Based on the month of actual expenses — and your own knowledge of your spending history — budget out how much of your income you want to allocate to each category every month. If desired, use an online budgeting platform, such as Mint.com, to help you manage your budget.
   • In your budget, make separate columns for projected budget and actual budget
   • Many people leave significant room in their budget for savings.
4. Be honest with yourself about your budget. It's your money — there's really no sense in lying to yourself about how much you're going to spend when making a budget, if you have no idea how you spend your money, your budget may take a few months to solidify. In the meantime, don't put down any hard numbers until you can get realistic with yourself.
5. Keep track of your budget over time. The hard part of a budget is that your expenses may change from month to month. The great part of a budget is that you'll have kept track of those changes, giving you an accurate idea of where your money went during the year.
   • Setting a budget will open your eyes to how much money you spend, if they haven't been opened already..
   • Plan for the unexpected. Setting a budget will also teach you that you never know when you'll have to pay for something unexpected — but that the unexpected will come to be expected.

Do you want to have an enjoyable holiday without financial constraints? Start planning for Christmas now! The beginning of the year is the best time to plan for the end of the year. Visualize the holiday you would want, how much will it cost? How much will you need to save on a monthly basis to raise the requisite amount? Give it a try 2016:)

If you have a business, Plan for your profit

We have first looked at budgeting but the focus was more at the personal level. This was for the good reason that personal disciplines largely translate to business disciplines. Bum Phillips said that the only discipline that lasts is self-discipline. Therefore, if you can master budgeting at a personal level, budgeting at the business level becomes an easier ride.

The principles are the same as those discussed for personal budgeting the only additional factors to consider while drawing a budget for your business are listed below:
• Prepare based primarily on the planned activities
• Activities should be aligned to the overall targets of the organisation
• Targets should be derived from the business plan
• Prepared & mapped to the chart to the chart of accounts to enhance monitoring & control
• Consider previous year’s actuals for transactions not expected to change significantly
• Consider economic factors e.g. inflation rates, tax rates, foreign exchange rates, interest rates as far as they are expected to affect the operations of the organisation
• Capital expenditure should be separated from the operational expenditure budgets

Do you hope to increase your sales turnover this year? Are you looking at making more profit this year than previous year? If yes, what is your action plan? You have to budget now for the outcome you anticipate; a budget is simply a plan in numbers.

To your success!

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