#MAKING A PERSONAL BUDGET HOW TO#
Know how to manage your money effectively.It then helps you know where to make the necessary adjustments for financial success. A budget helps you measure your finances – possibly every penny made and spent. Remember the story we started with?Īs we often say at Cowrywise, what you don’t measure, you can’t multiply. This is because there might be money leaks you’re not aware of that only a budget can help you fix. Wanting to build wealth for the long-term but ignoring this important basic step of budgeting can be likened to someone working really hard to pour water into a basket. These are to have specific figures or estimates to ensure your budget is close to accurate. These include but are not limited to your: When creating a budget, you need to consider a number of things. – Edwards Deming, Statistician What data do you need to create a budget? Without data you’re just another person with an opinion. Without data, you will create a wishlist instead of an actual financial plan. However, a financial plan may be created independently as well, as long as it is devoid of sentiments and is backed by data. It is so crucial that some high-net-worth individuals/families employ a financial firm or planner to help create one for them. It begins with where you are and creates a roadmap for where you want to be monetarily. What’s a financial plan?Ī financial plan is a comprehensive understanding and evaluation of your current financial state in comparison to your long-term goals, as well as the steps needed to achieve these set goals.
It’s hard, if not impossible to create a personal financial plan without a budget but just before I go on with the benefits of budgeting, let me quickly explain what a financial plan is. Why are budgets so important?īudgets are essential in helping you create a financial plan. They can be created by individuals or corporations and are usually short-termed to maximize efficiency.īudgets are not only for people who “know” or “ like” numbers, but can be as simple as you want. Budgets are essential when measuring inflow vs outflow. Effective budgets are evaluated periodically to eliminate spending assumptions and they help determine if one spends more or less than their income. What is a budget?Ī budget is an approximation of one’s income and expenses for a set (future) period of time. This is one of the reasons people wake up at 50 sometimes and begin to ask “What did I use all my money for?” “What did I spend all my life doing?”Ī budget would have been a perfect way to answer that because data doesn’t lie. They were then able to block these money leaks – or at least drastically reduce them. He started getting speaking engagements that paid more than he ever thought possible… However, one day, his wife asked him about all the money they were making and asked him to give an account but he became defensive – “I’ve spent most of the money on this family and you know it…”īut there was no budget, therefore, there was no way to show a corresponding expense list that showed that most of the money had been spent on the family for real.Īfter this, they created a budget (which includes an expense list) and found that a lot of the funds had actually been going to friends who wanted to borrow money and black tax (aka obligations or funds to assist family members). A well-known Nigerian speaker once shared how his family’s finances took a turn for the better.
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