Set Up A Budget - Securities Commission of The Bahamas

Most people have responsibilities like bills that they have to pay, but nobody has an unlimited source of income. A budget is a powerful tool that can help you manage your money so that your needs are taken care of, you can live a comfortable lifestyle, and you have savings set aside for emergencies and for specific goals you have set. It is also key to determining if, or how much, you can invest, so your money can get to work building wealth for you.

A budget is at the core of any financial plan. Simply put, a budget is an estimation of money you expect to receive and money you expect to spend over a period of time in the future.

For budgets to work, you need to be clear about what your goals and priorities are. You also need to follow your budget consistently and review it frequently to ensure that you update it as your circumstances change.

Here are a few tips:

1) Determine your goals. You should have written out your goals and target dates for achieving them already (Step One). Be sure to have an ‘emergency fund’ as a part of your goals, if you don’t already have one set aside. Many investment advisors recommend that everyone set aside three to six months of income for an emergency, such as job loss.

2) Prioritise.Separate the things you need from those you want. It seems obvious but be sure to take care of your needs first. If you find that you are spending everything you make, you will have to find a way to cut back on your expenses or to earn additional income. See Tip 6 about watching for the ‘little things’ that eat away at your income and wealth.

Remember, you or your family will need money in the future, so make sure saving is a high priority for you. A strategy of many successful savers is to always “pay yourself first” by setting aside savings before addressing any other needs. To help them succeed, some people ensure that when they get paid, some of their paycheck is sent directly to a savings account. You may want to consider doing what many smart savers do – keep your money in a savings account that is not linked to a debit card, making it just a little bit harder to make a withdrawal.

3) Pay off credit card debt as quickly as possible.Aim to never spend more on your credit card than you can pay off in a month. When prioritising your goals, if you have balances on your credit cards, paying them off should be a top priority. Very few investments, if any, will ever generate sufficient returns to offset what a credit card will take out of your wealth through interest charges.

4) Remember irregular expenses.For many people and families, budgeting is easiest to do on a monthly basis, as many bills come due on a monthly cycle. Be mindful of expenses that are not due during your regular budgeting cycle. For example, in your birthday month you may have to pay to insure and license a vehicle. Plan to have money set aside for events like these.

5) Track your expenses.Keep a record of what you are actually spending. This will help you to understand your spending habits and provide excellent information should you need to adjust your budget to be able to save or invest more. Keep a notepad and pen handy, or download a mobile phone app that will help you to record your actual spending right away. Don’t wait too long to record expenses either, or you may forget them.

6) Don’t overlook the small expenses.You might be surprised at how much you spend on “the little things”, like “spinning” for a lucky number on a virtual gaming app every day, or paying for those extra data charges for the movies and music you download to your mobile phone. Cutting back on a cup of brand-name coffee every day could save you thousands of dollars in the long run. Now that you are tracking your expenses, look at where you can cut back so you can have more money to achieve your dreams.

7) Get into a routine.Review your budget regularly and make managing your finances a matter of habit! For budgeting to help you accomplish your goals, you have to choose to make it a part of your life.
To get started, use the sample budget form below to help achieve your savings, investment and other financial goals.

To get started, use the sample budget form below to help achieve your savings, investment and other financial goals.