SMATRT MONEY SERIES
Do you ever wonder why there are “too many months at the end of your money?” Do you find it difficult to keep track of your expenses? Ask yourself this: “Who's the Boss - ME or MY MONEY?”
Who’s the Boss?
One of the areas of Financial Planning is Cashflow and Debt Management. In this regard, it is important that we understand the kind of relationship we have with our money - do we have Control over our money or does money Control us? Who is the Master and who is the Servant? If we allow our Cashflow and Debt to manage us, then money’s our master. On the other hand, if we can manage our Cashflow and Debt effectively, then we are the master of our finances.
Let's take a look at this simple guideline:
Do you ever wonder why there are “too many months at the end of your money?” Do you find it difficult to keep track of your expenses? Ask yourself this: “Who's the Boss - ME or MY MONEY?”
Who’s the Boss?
One of the areas of Financial Planning is Cashflow and Debt Management. In this regard, it is important that we understand the kind of relationship we have with our money - do we have Control over our money or does money Control us? Who is the Master and who is the Servant? If we allow our Cashflow and Debt to manage us, then money’s our master. On the other hand, if we can manage our Cashflow and Debt effectively, then we are the master of our finances.
Let's take a look at this simple guideline:
| Who's in Control? | Master | Servant |
| Cashflow & Debt | Money | Man |
| YOU | Man | Money |
The question now is: "How do we make Man the Master of His Money?" BUDGETING, of course! One of the tools in managing our Cashflow and Debt effectively is through Budgeting. Even our country practises this and it is important that we too, form a habit of budgeting and more importantly, sticking to it!
What’s a Budget?
For most of us, a budget is perceived as something that restricts our spending and its main purpose is to make us Save, Save and Save some more. That is why so many of us just don't get down to it. In reality, a budget is a plan for spending our money - it does not tie us down. In fact, it liberates us! It does not tell us what we cannot spend, but rather it tells us what we can spend on without having to feel guilty about it later.
Let's take a look at some Key Components of a Budget:
What’s a Budget?
For most of us, a budget is perceived as something that restricts our spending and its main purpose is to make us Save, Save and Save some more. That is why so many of us just don't get down to it. In reality, a budget is a plan for spending our money - it does not tie us down. In fact, it liberates us! It does not tell us what we cannot spend, but rather it tells us what we can spend on without having to feel guilty about it later.
Let's take a look at some Key Components of a Budget:
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There are basically two main components to a Budget: Cash Inflow (Income) and Cash Outflow (Expenses). We’d have a Surplus if our Income exceeds our Expenses. On the other hand, when our Expenses are more than our Income, this would result in a Deficit. This Deficit would either eat into out previous years’ savings or force us into debt.
Needless to say, our goal is to ensure that our income is more than our expenses and most people will focus on increasing their Income rather than controlling their Expenses. Ironically, in our pursuit of increasing our income, we "unconsciously" increase our Expenses as well! The end result - our Net Cash Flow position would remain relatively the same or worse-off!
How Do I Do It?
There are really no hard and fast rules but below are some simple yet effective strategies for better control over one's Cashflow through proper Budgeting:
1. LIST
a) List down all your sources of Income
b) List down all Expense Items for the month, categorizing them as either Fixed or Variable (do not overlook one-off lumpy expense items like Road-tax & Motor Insurance premiums)
c) Calculate the Net Cash Flow position (total inflows minus total outflows)
2. CHECK
a) Screen through the list of Variable Expense Items and try to identify items that can be done away with or delayed.
b) Do a reality check to see if the budget is realistic and take one step at a time (don't be too hard on yourself, for starters)
3. TRACK
Warning: This involves a great deal of Discipline!
Depending on your preference, you could either record all your spending on a daily basis with the help of a PDA or you may stick to the conventional "555 Pocket Booklet". If possible, try to keep the receipts for all your purchases and sort them out according to your budgeted itme. At the end of each week, transfer the numbers over to the Master Budget Record. Do this religiously for the next 30 days and it will become your second nature.
4. REVIEW
After the 30-day period, sit down with your spouse or an advisor to review your progress by comparing “Amount Budgeted” versus “Actual Amount Spent” and determine the reasons for the difference. Adjust your budget or spending, where necessary.
In Summary…
The main thing to bear in mind is to ensure that our Cash Inflows are always more than our Cash Outflows in order to have “Cash Overflows” or what is commonly known as Cash Surplus. Only then could we embark on the journey towards Financial Independence. A journey of a thousand miles begins with the first step. So, take your first step by preparing your Family Budget and more importantly, stick to 'em!
Source : AKPK
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