THE RECENTLY DELIVERED Financial Statement and Budgetary Proposals will likely call for some individual taxpayers to revise their personal budget. More taxes will likely mean less disposable income.
If you were already feeling like you never have enough money, you will find yourself in crisis mode without a relook at your earnings and spending. In any event, that feeling of never having enough money is a likely sign that your practical money management skills are weak.
Building strong budgeting muscles will bring to bear your values about personal finances into stronger focus. You will be forced to consider specific choices not only about spending, but also about earning and investing. Every occasion you review your budget is an opportunity to grow your budgeting muscles.
Here are six steps for reviewing your budget:
B – is for budgeting, which means considering how to expand or maximise all sources of income, how to reduce or minimise all expenditures, and how to invest prudently within one’s risk tolerance while maintaining an affordable and acceptable lifestyle.
The income side of budgeting usually is not given enough attention, that is, finding novel and legitimate ways of expanding earnings. This includes considering how reduced spending may provide more savings that may be invested to provide additional investment income.
So the very first critical step is to consider carefully a range of ways that you may increase your income.
U – is for underspending. It is so important not to expend every cent of one’s income on consumption. Conspicuous consumption can be quite exhilarating, just seeing your peers gaping enviously. Worse yet is if you find yourself spending just to keep up with your neighbours. Surely, some of one’s income should be held for that unexpected rainy day, for the future support and development of dependents, and for the future (for example – retirement).
D – is for delayed gratification, an important part of controlling spending, especially spending on oneself. Waiting until an expense can fit into a feasible financial plan makes more sense than creating untenable stress. Budgeting over two years or more will allow you to see how a particular expense may be too big for one year, but can be saved towards over a two-year period or longer.
G – is for giving. Do make some room in your budget for giving to others. If your budget has become so tight that finding an extra dollar is difficult, consider giving some of your time, your talent or a letter or a card. Kind words at the right moment can be more important than any amount of money. Charity is a foundational law of financial prosperity.
E – is for earning interest. Whenever possible, secure your savings in an interest-earning account. Interest is one sure way of increasing your earnings and so making your income grow over time. Earning a return on your savings is tantamount to making your money work for you. A potent strategy involves seeking out opportunities for your invested funds to earn compound interest over time. The chosen investment vehicle needs to be within your risk tolerance spectrum, though.
T – is for trial and error. You will best learn about budgeting by personal trial and error. Your friend’s budget will likely not suit you since you may have differing values. Through trial and error, you will get the chance to reconcile your values, your budget and your pursuit of happiness. You get to figure out the underlying values that guide your income gathering and your spending and investing habits.
Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.
This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
