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There are no fast and hard rules for budgeting, but there is a popular system known as ‘The 50-30-20 Rule”. This is a technique for ensuring a balance between paying bills, achieving financial goals and spending on pleasure. This rule requires that a person’s income should be divided into the three categories accordingly for the budget to be effective. It simply means that an individual should allocate 50 per cent of total income to needs, which include feeding, rent, transportation and other essential items. About 30 per cent should be used for wants, which are luxurious things that are not vital for survival such as vacations, fancy accessories, while 20 per cent could be invested in financial assets through collective investment schemes.

Monitoring and evaluating your budget

Budgets are prepared ahead of the actual receipt of income and payment of expenses, so it is important to check how these compare with your budget after a period. Because it is difficult to accurately forecast all income and expenses, actual results often deviate from planned figures. So, you should continuously evaluate your budget because it helps you to know the reasons for deviation, creates room for revising assumptions and enables you to make improvements. Also, if your plan changes over time, revise your budget to reflect this.

To evaluate your budget, do these simple things. First, recognise new changes and reflect in your financial goals. For example, if you are getting married or having a child, your financial budget is likely to change drastically. Also, if you are promoted at work and your income increases, it is important to recognise how the additional income will feature in your budget. Second, you should identify the weaknesses of previous budgets and make corrections.

Tools for preparing a financial budget

Technology is changing the way things are done and this also applies to a financial budget. There are now applications that have been developed for tracking the flow of income and expenses, and for budgeting. In a world where most transactions are now electronic, these applications are particularly more effective in helping you monitor your budget. The notable ones include Monthly Budget Planner & Daily Expense Tracker, My Budget Book, ‘Spendee’ – Budget and Expense Tracker & Planner, to mention a few. Also, financial budgets can be built using spreadsheets which will allow individuals to automatically see the state of their budget by inputting their income and spending into an already formatted excel document. Templates of this kind are available on the internet and can be downloaded, adopted and adapted for personal use. You may also seek professional help from a financial adviser by responding to this article with your questions.

In summary, a financial budget is needed to have better control over one’s finances and to prevent situations where we are unable to meet our priorities. But ultimately, the discipline to keep to the budget is what ensures that our financial goals are met.

In the words of ‘Joe Biden’; “Don’t tell me what you value, show me your budget and I’ll tell you what you value”. A budget reflects the value a person places on how his/her wealth is spent.

“Budgeting has only one rule, do not go over budget “– Leslie Tayne.