Avoiding Common Pitfalls to Budgeting
Your budget is simply a tool to help you plan your expenditure or manage your cash flow. This should be in the context of your financial goals. This means your budget should be aligned with your financial goals. One of the common pitfalls to budgeting is paying yourself last, and not linking your budget to your financial goals. Continuing with the example from the previous post – pay yourself first in budgeting, saving 10% of N150k per month means your financial goal is to save N180K in 12 months, say January to December (not factoring the interest). If you can live with your new disposable income, which is your net income after taxes, payroll deductions, tithes/giving and savings, then you can achieve your goal of saving N180k in 12 months. If your goal is to save N600k in 12 months, it means saving N50k per month, and using the previous example of a gross pay of N150k, it means a new disposable income of N90k less N35K less, which amounts to N55k per month. If you can cut your expenses to fit your new N55k budget, then your goal of N600k in 12 months is realistic.
Actually, there is nothing like an unrealistic goal. Someone has done it before, and if it has not been done before, you can set a new record. What is unrealistic is your level of commitment to the goal. Until you are willing and ready to pay the full price upfront, you cannot win the prize. Every goal has a price to pay.
After putting together a budget, the next and the most crucial step is to make it work. This is where the rubber hits the road. Applying the principle of pay yourself first positions you to meet your savings goals and with a dose of discipline, live on your new disposable income. There are a number of financial tools like tax calculators and sophisticated budget tracking software that can help ease the burden of budget. However with access to credit via credit cards, you may be tempted to bust your budget. There are many influences that conspire to undermine your carefully planned budget. I call them budget busting monsters.
You have to win the battle over these monsters if you want your finances to be in shape to withstand all manner of storms that come inevitably during the span of your working life. I will be taking them one by one in the following posts
Usiere Uko is a writer and bestselling author of Practical Steps to Financial Freedom and Independence, Available on Amazon.
He also writes for Punch AM Business, Leadership & Lifestyle and Today’s Lifeline magazines.