The key to financial health is your ability to plan for your financial needs by allocating money monthly to the areas that you need to budget for, to track your spending, and to plan for your short- and long-term financial goals.
The key to financial health is the ability to budget monthly. Your budget should make provision for the here and now, but also include room for your future goals like retirement or education. Your future financial well-being is determined by how well you manage your money and payments now. The key to financial health is your ability to plan for your financial needs by allocating money monthly to the areas that you need to budget for, to track your spending, and to plan for your short- and long-term financial goals. Your money plan should make provision for both and should be done on a regular basis. Your budget and spending should be done monthly and your goal setting plan can be reviewed every three to six months.
Budgeting is the most basic and the most effective tool for managing your money. It shows you how to allocate your money and offers you the choice to pay for the most important things first. With a budget you control your money, your money does not control you.
Budgeting clearly shows you how you allocate your money and gives you choices based on your financial limitations. This means you can avoid overspending and be in too much debt. Bayport Financial Services offers a free online budget calculator that helps you create your own personalised budget plan. The ‘Affordability’ section within your own Bayport Credit Health Report, gives a ‘debt-to-income’ ratio. This ratio is broken down into 3 levels, which has been explained below:
Refer back to Module 1 to remind yourself about the Bayport Credit Health Report and to get your free report.
A budget is a way of being clear about the way you spend and save your money and therefore gives you more control over your money. The other benefits of budgeting include:
|Benefits of budgeting|
|Helps you create a visual spending picture|
|Budgeting saves you the stress of suddenly having to adjust to a lack of funds because you did not plan how to spend your money.|
|It keeps you focused on your money goals: as you avoid spending unnecessarily on items and services that do not help you to meet your financial goals.|
|If you are working with limited resources, budgeting makes it easier to make ends meet.|
|It provides you with an early warning for potential problems: When taking a “big picture” view, you will see potential money problems in advance, and be able to make adjustments before the problem appears.|
|It makes you aware of what is going on with your money: With budgeting, you are clear on what money is coming in, how fast it goes out, and where it is going to.|
|Budgeting saves you from wondering where your money goes every month.|
|A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt.|
|It helps you organise your spending and savings by dividing your money into categories of expenditures and savings, a budget makes you aware which portion of your money should be allocated to your expenses, debt repayments and savings.|
|It helps you determine if you can take debt and how much: Taking debt is not necessarily a bad thing if the debt is necessary or you can afford it.|
|Budgeting shows you how much a debt load you can realistically take without being stressed, and shows you if the debt load is worth it.|
Getting started with your budget may seem like a daunting task, but the following tips will help you to create a practical and realistic plan:
You most probably have financial goals in your life. These are things that you desire or need that you do not have money for at this point in time and are working toward achieving the money to obtain your goals. Here are the most important things to remember when creating your financial goals:
When setting your goals, also take into consideration your family’s needs and think carefully about these. For example, you should not buy a new car if your family does not have a home, or school fees are not paid for.
Goal setting can only be successful if you understand how to set your goals and then how to achieve them:
Always remember these goals must be written down so that you can visualise and remember them daily.
Now that you are more aware of how to plan, budget, and control your spending, you are ready to learn more about saving in our next module, Grow Your Money.