Recently, we addressed the matter of persons creating wealth on limited resources. This week, we look at part two. Budgeting is the most fundamental tool to prudent personal financial management and wealth creation. And it is just as important to the high-income earner as it is to those on limited income.
A budget is simply a plan for investing and spending money.
It serves a number of key purposes. Firstly, it allows us to save and invest for future goals, while taking care of present ones. Secondly, it serves a crucial cash flow management purpose in that in the process of managing your cash, you ensure that the timing of income and expenditure is consistent.
There are some persons who never budget. They argue that it is pointless as their earnings are so small, that serious budgeting is not only unnecessary but inconsequential.
Some go further to argue that whatever goes on paper could just as well be kept in their memory. And in fact they do a far better job of managing their money anyway by thinking about it constantly.
If you have never prepared a budget, you are denying yourself a major tool for prudent personal financial management and wealth creation. Regardless of how much you rate your memory, there is absolutely no substitute to sitting down with pen and paper, or better yet, with a computer to plan your financial roadmap for a particular period.
Most persons plan on a monthly basis, but if you are paid fortnightly or weekly, there is absolutely nothing wrong with doing 26, or for that matter, 52 budgets in a calendar year.
On the face of it, all this time spent to plan how to invest and spend (the ordering of both activities is deliberately done) your money does seem to take up an awful lot of valuable time.
That is precisely the point. Prudence in personal financial planning does require time and effort. The wealthiest persons spend an average of five hours per week doing just that.
A good budget anticipates irregular expenditures and allows us to adjust by taking a number of steps. First, we can postpone additional expenditures. Second, we can source outstanding income sooner. And third, we can source credit to tide us over that initial burst of expenditure.
The Nassau Guardian
