Draw­ing up a bud­get is not a one-off process

Finweek English Edition - - MONEY - Port­fo­lio Man­ager at PSG Wealth

In Greek mythol­ogy, Sirens were myth­i­cal crea­tures that lived on an is­land and lured sailors to their doom through en­chant­ing songs. Sailors, who could not re­sist t he temp­ta­tion of the Sirens’ song, help­lessly wrecked their ships on the is­land’s rocks.

Per­sonal f i nance works roughly the same. We all know that debt is a bad thing and that we should al­ways re­main within our per­sonal in­come lim­i­ta­tions. Yet the temp­ta­tion of easy loan avail­abil­ity makes it as hard to re­sist as the Sirens’ song. But the story con­tin­ues. Or­pheus, a tal­ented and charm­ing mu­si­cian was called in by the Arg­onauts to as­sist them on an ex­pe­di­tion that would lead them past the no­to­ri­ous is­land. As they ap­proached the is­land, Or­pheus heard the Sirens’ voices, im­me­di­ately took out his lyre and started to play. Thanks to his mu­sic be­ing louder and more beau­ti­ful than the Sirens’ song, the crew man­aged to sail past the is­land safely.

In per­sonal fi­nance, the lyre is noth­ing other than a well-planned bud­get. The trap that most peo­ple fall into, how­ever, is con­vinc­ing them­selves that they can stick to their bud­gets by mem­o­ris­ing them. Surely the need to for­mally draft a bud­get is re­dun­dant? Un­for­tu­nately, you are fight­ing a los­ing bat­tle if this is your way of think­ing.

A per­sonal bud­get is fairly sim­ple to set up and shouldn’t take more than 15 min­utes a week to up­date. Al­ways re­mem­ber; if you can mea­sure it, you can man­age it.


1. Prefer­ably start with a blank Ex­cel spread­sheet, or a columned sheet of pa­per. 2. Cat­e­gorise your ex­penses by care­fully work­ing through the past week’s bank trans­ac­tions or bills. 3. Do not for­get to in­clude your hob­bies and other ex­penses, they also have to be cat­e­gorised. 4. Any form of in­come that flows into your ac­count has to be in­di­cated clearly in or­der to de­ter­mine your to­tal av­er­age monthly in­come. 5. Re­mem­ber that sav­ing comes first and not af­ter your ex­penses have been cov­ered, so be sure to set a fixed amount aside on a monthly ba­sis. Also en­sure that you have a sep­a­rate sav­ings fa­cil­ity at your dis­posal. 6. Keep in mind a re­al­is­tic tar­get amount, in each ex­pense cat­e­gory, by which you would like to cut your ex­penses in an at­tempt to save more.

Once sat­is­fied that all pos­si­ble cat­e­gories have been cov­ered, start cap­tur­ing the data on your piece of pa­per or spread­sheet. 8. Take note of cash with­drawals and be sure to in­di­cate them clearly on a weekly ba­sis. 9. Cal­cu­late the subto­tals of your in­come

and ex­penses. 10. Sub­tract your to­tal ex­penses from your to­tal in­come to cal­cu­late your net in­come. 11. If you have a neg­a­tive net in­come (i.e. your ex­penses ex­ceed your in­come), you will have to se­ri­ously re-eval­u­ate your spend­ing habits. 12. If you have a pos­i­tive net in­come, trans­fer the bulk of this amount to your sav­ings ac­count, unit trust or any other sav­ings fa­cil­ity iden­ti­fied in step 5. Leav­ing the money in your bank ac­count will lead to the temp­ta­tion of un­nec­es­sary spend­ing. 13. Af­ter a month or two, you should have been able to iden­tify and quan­tify your spend­ing, which means it’s time to have another look at pos­si­ble ways in which you can cut back on them. 14. Set re­al­is­tic goals in or­der to cut back on ex­penses by start­ing with the big­gest ex­pense first and then work your way down. 15. Keep your bud­get up to date and be sure to eval­u­ate your bud­get on a monthly ba­sis go­ing for­ward. It’s ex­tremely im­por­tant that you take a re­al­is­tic ap­proach when pre­par­ing your bud­get. Keep in mind that you are not try­ing to im­press any­one; you are work­ing to­wards cre­at­ing a pros­per­ous fu­ture for your­self. More im­por­tantly, be dis­ci­plined and stick to your bud­get un­der all cir­cum­stances. It is the only way that you will be able to safely nav­i­gate the temp­ta­tion of un­nec­es­sary spend­ing and debt.

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