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More and more of us are feeling like we’re living a champagne life on a beer salary – even if that means we’re still settling for beer.

The bottom line is that most people are struggling to make ends meet and whatever luxuries we were used to – be it actual champagne or a good block of cheese – we’re increasingly finding ourselves forced to downsize, sacrifice and budget.

We’re all concerned that the prices for everyday purchases – including groceries, household utilities and fuel – will rise, because well, they have been. This stark reality means budgeting may be more necessary than ever.

While we’re not exactly taught about budgeting, it is high time that Saffas learn how to manage their money and build their budgets. It doesn’t count if you bought Sam Beckbessinger’s book Manage Your Money Like a Fucking Grownup and haven’t read it.

Budgeting is necessary as a cornerstone of financial planning that ensures you are living within your means, helping you remain in financial control – ask the financial advisors at Consequence Private Wealth who will happily show you that understanding where you are going financially can be a very rewarding process.

The Conversation has listed a few guidelines for creating an effective budget.

1. Choose your budget tool

The good news is that you don’t have to start from absolute ground zero because there are several online templates and apps you can use for budgeting. For instance, 22Seven has gained popularity in South Africa due to its compatibility with several financial institutions, including the country’s big five banks.

If you prefer to put pen to paper, some online templates come with free printable budgets, while using your own Excel spreadsheet is just as effective. Either way, choose a budget tool that you will commit to.

2. Itemise your spending

Since a budget basically shows how much you’re spending in relation to how much you’re earning, you need to use your selected budget tool to fill in your income, expenses, and spending habits in a month.

A budget can be considered a cash flow statement because it allows you to track money coming in (income) and money going out (expenses). If you are living within your means, your budget should indicate a surplus – more cash inflows than cash outflows.

3. Be honest and accurate

You’re only going to shoot yourself in the foot if you consider your daily cuppa a freebie because it’s become such a natural and needed part of your day. It’s an expense, and you have to log it. Once you do, though, you may not like how your financial position looks.

Basically, you need to look at your financial statements and fill your expenses (both regular and intermittent) into your budget honestly and accurately.

A general rule of thumb is that if it’s deducted from your account then you should treat it as an expense. This includes paying for coffee, payments for housing, medical insurance, fuel, dining out, credit card repayments and even bank fees.

4. Save before spending

Now it’s time to see where you can cut back so that you either manage perfectly every month or even walk away with a little saved.

When compiling your budget it’s important to demarcate how much will be in the form of savings. What’s more important is getting into the habit of saving before you spend instead of saving after spending. If you spend first then you’ve deprived yourself of the opportunity to save for a rainy day.

Just think of saving as paying yourself.

5. Look at assets and liabilities

Now it should be time to take it up a notch by including your assets (everything you own with an economic value) and liabilities (everything you owe) to determine your overall financial position.

You can get a clearer picture of your overall financial wellbeing by compiling a list of all your assets, for example your savings and home equity, in relation to liabilities (such as bank loans). Knowing your long-term financial position can indicate how financially resilient or vulnerable you are. In the event of a financial emergency, you will know which resources you can draw upon to meet an unexpected expense.

Creating and sticking to a budget can prevent you from financial shock – you don’t want to end up borrowing and digging yourself into a money-sucking pit.

Think of budgeting as taking a small but important step towards reclaiming control over your finances and improving your financial well-being.

If you need some advice, a shoulder to lean on, or proper financial intervention, Consequence Private Wealth can help you manage major monthly budgeting items and plan details, which in most instances are purposefully too complex for the normal guy to manage.

Happy budgeting!

[source:theconversation]