Have you ever wondered what would happen if the company you work for didn’t have a budget? Surely more than once you have heard when making a purchase request that “they will see, because that is not in the budget” and it is precisely because no organization –or country– works efficiently without a budget. Imagine how you much you’d worry about actually getting paid in the right amount at the right time!

The funny thing is that, although the budget is the only one that allows us to plan, decide and control how we use our money, on a personal level it is frequently overlooked. I’m always surprised how often I hear about young professional not budgeting, or even worse – having one but not keeping up with it!

If you want to see real changes in your wallet, in your bank account and in your quality of life, it is necessary not only that you know how much you earn, but how much you spend and what you spend on, how much you owe and how much you save. I really believe that a budget is the first and arguably one of the more important tools for financial success.

Find a tool that works for you

I’d love to get you setup for success in 2021 with a budget of your own – one that’ll actually work for you. Once you find a good template or tool that’ll work for you, you’ll start by updating your personal budget template, where you can see your expenses per month, per pay period and the balance for the year, but in addition to that:

1. In each of your income and expenses you will be able to see how much it contributes in percentage terms. 
2. Your expenses are grouped by categories that become a graph that shows you what is taking your money, so that you evaluate if you really want to give it that weight in your financial life. 
3. When you realize, for example, that card payments take 30% of your income, you will have a different perspective of your situation.
4. Budget for situations that are important, be able to afford lawyers or professional loss adjusters in case the situation arises.

Compare your actual expenses to actual income

Once you have all your frequent expenses in writing, compare them with all your net income, that is, what you receive after the corresponding deductions, remittances, pensions and any other income. A common mistake is to mentalize our income on the basis of gross salary (what the contract says, but from which taxes are subtracted), which causes our expenses to be higher than we can really afford. When you compare your expenses versus take home income you will realize your reality: do you have enough or are you missing? In most cases it is necessary, especially since these expenses almost never include savings or variable expenses. 

When you make the budget you should take into account those expenses that are not month by month, but with another periodicity (every 3, 6 or 12 months, for example), such as maintenance, taxes, insurance, purchases for the home, among others. Ideally, you divide how much you would have to set aside each month for those expenses and include them in your budget. In this way, you guarantee to have the fund when required and you would not have to resort to credit to cover it or exceed your expenses when they occur.

Summary

A budget is the main requirement for financial success. Find a tool that works for you, be honest with yourself and accurate in your record keeping, set and work towards your targeted goals!

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