How To Use A Budget To Achieve Your Financial Goals

What’s a budget?

Simply defined, a budget is a declaration and statement of your financial priorities.

The purpose of budgeting is to help you use money to live your life as best as you can. It is the basic building block of personal finance and the accumulation of wealth.

Budgeting is the key driver in your finances. The fact is that those who use budgets are likely to be in a much stronger financial position than those who don’t. Those who use budgets are less likely to fall behind on their bills and debt payments. Those who don’t use budgets are more likely to spend more than they earn.

Whatever you want to have or do that requires money should be in your budget. For example,
if you say you love to travel but don’t have it in your budget, it means it’s not a priority. It’s a dream. And if you travel when travel is not in your budget, it will mess up your finances.

How To Use A Budget To Successfully Manage Your Personal Finances?

The question is: How do you use a budget to achieve success in managing your personal finances? In preparing your budget, you must have a template. A budget template should be based on how you split your income to meet your expenses. An example is the 50-30-20 rule.

What is the 50-30-20 rule? This rule suggests a guide on how you should budget your money if your earning and spending is driven by a monthly cycle:

• 50% on Needs and Debts: Necessities like housing, groceries, transportation and debt repayments.
• 30% on wants: Variable spending like entertainment and travel.
• 20% on Savings and Investments.

However, there is nothing magical about the 50-30-20 rule. It’s just a way to simplify the complex issue of how to budget your money.

The main point of the 50-30-20 rule is that you must adjust your budget to match your preferences and your current financial reality.

By this rule, your top priority is your fixed and recurring spending.

Examples include:

• Housing costs. Rent, Repairs, etc.
• Transportation costs.
• Cell phone.
• Gym memberships.
• Subscriptions.

Your fixed and recurring expenses deserve your priority attention for two reasons. They take the lion’s share of your money and cutting those expenses requires a one-time investment of your attention.

By focusing on fixed and recurring spending, you invest your attention once and reap the financial rewards every month going forward.

Once you move your fixed and recurring expenses to where you want them, you can then review your small, daily purchases to ensure they are within budget.

Read More: 4 Reasons Your Small Business Won’t Survive Without You

When you need to focus on your small spending, your goal should be to cut out the impulse purchases or “wants” that provide little or no value.

Why budgets fail. One reason budgets fail is underestimating how often and how much you spend money on “one time” purchases that are not in your budget. For examples:

• Your favourite musician is in town. You buy a ticket for N10,000 even though it is not in your monthly entertainment budget.
• Your birthday is next month. You and your loved ones decide to celebrate with a 5-star outing, at a cost that is equivalent to 10 times your annual budget for entertainment.
• Your phone stops working or you decide to upgrade it. You spend N50,000 on a new device, forgetting that your budget does not include the cost of replacing your phone.

It’s easy to rationalise your action by regarding these as “exceptional expenses,” reasoning that you are not likely to repeat them any time soon.

The truth is that there will be many more such random expenses if you continue to take your eyes off the ball. Your goal is to avoid or minimise expenses that don’t fit your budget.

How do you budget for “one-time” expenses? You can use budgeting to
organise your financial life by operating your savings, investments and spending into different categories, each serving a different purpose. You can divide these different categories into separate accounts, such as:

• Emergency Fund.
• Retirement Fund.
• Vacation Fund.
• House (Rent, Repair) Fund.
• Car Repair Fund.
• Children’s Education Fund.
• Healthcare Fund.

By doing this, you can use budgeting to distribute your money from one big pile in your current account into smaller piles, with each pile earmarked for a specific purpose.

If you base your financial plan around the 50-30-20 budget, your financial future relies on the idea that you will save and invest 20% of your income.

What happens if your budget allocates 20% of your income to saving, but after paying for various “one-off” expenses, you only save 10%?

Saving less than half of what you planned means delaying retirement, working part-time in retirement, and reducing your standard of living in retirement. Or a combination of these options.

Automate your budgeting. Because you are the only person who can force yourself to stick to your budget, a simple way to stick to your budget is to automate it as much as possible. Most of your bill payments, recurring expenses, debt payments and savings goals can be automated. This means that the money is automatically taken from your current account and used to pay a bill, make a debt payment or move to a savings account. The more line items you automate in your budget, the fewer times you will need to make an active decision to stick to your budget.

Read More: How To Stick To Your Small Business Budget

The bottom line is that you must always remember the importance of tracking your spending and evaluating whether you are happy with where your money goes each month.

Failing to prepare and work with your budget is a recipe for financial failure. Your budget is the key to your success in personal finance. It is the natural consequence of consistently applying the basic and fundamental principles of financial success.

What are your financial goals? Do you want to build an emergency fund, save for a dream vacation or invest for long-term wealth? We will help you set out on the road to financial success. We will provide practical tips and tools to help you create a budget that works for you.

Say goodbye to your money problems and hello to financial freedom. Map out your destination. Begin with a budget as your cornerstone to acquiring and accumulating wealth. It’s budgeting made easy!

Need help to accelerate your small business growth? Contact Mr Ted Iwere today!!!

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