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  • Writer's pictureRevanno

What's that "budgeting" thing all about?

Updated: Oct 25, 2020

Are you able to account for every dollar of revenue you earn and expense you incur? Most people aren’t. Many people believe in the idea that money will always come, so why not live a little? That is a mentality that creates a lifestyle of high consumption which leads to, yes you guessed it – NO SAVINGS. This is why budgeting is crucial. Budgeting is the ability of knowing the directional flow of your money. It is comprised of two components, income and expenses. Through careful accounting of your income and expenses, you are able to establish a sense of financial security.


There are various steps in creating a budget. The first involves identifying your streams of revenue. This can be from your traditional 9am-5pm job, your side-business, investments or allowance/gifts. Your revenue represents the start of the journey for your dollars. The second step is to categorize expenses into the following groups:


i. Savings

ii. Needs

iii. Wants


i. Savings should be considered an expense to the extent that it is the concept of “paying yourself”. This is a theme that will be discussed frequently throughout this blog.


ii. Needs are those necessary expenses incurred for a basic standard of life. Needs can include rent/mortgage payments, utilities, food and outstanding debt.


iii. Wants are things that you do not need but desire. Examples are a new bag, vacations, jewelry, etc.


The third step in creating a budget (refer to our free template here) is to divide the dollar amount of each expense group by your total revenue dollars. This will give us percentages of how much of your revenue goes to each expense group. Here is where we will introduce the “50-20-30 Rule”. This is a rule that states a max of 50% of income should go towards needs, 20% towards savings and 30% on wants. An example of this concept is as follows:


John made $1,000 this month. Immediately he should take $200 out of his paycheck and put it towards savings. His expenses which are needs like rent, utilities, gas and food should not exceed $500. The remaining $300 can go towards his wants like dates, wine (a personal favorite) or new clothes.


Now that we have discussed how to create a budget and the percentage benchmarks you should aim towards, the next step is monitoring. Monitoring is possibly one of the most important steps of the budget. This activity involves keeping track of your income collections and expenditures. Although monthly tracking would suffice, daily tracking can create a more accurate picture of your financial standing. This can easily be done through the use of excel or budget apps (e.g. EveryDollar, Mint, etc.) that you can find for your smartphone. Through monitoring, you can identify areas where you are spending the most, and areas that you can decrease spending in. For example, buying one less bottle of wine a week can free up cash to go in other areas. At this point I’m sure you’re picking up on a trend here lol.


Budgeting is possibly one of the most powerful and useful tools you have at your disposal in this financial journey. It allows you to take a snapshot of where you are in your spending, and where you want to be. Thus, if you plan to budget you are planning for success!


Note: This blog reflects my opinions and is for informational and/or entertainment purposes only. This blog does not reflect the opinions of any organisations with whom I am affiliated. This blog is not intended to serve as a substitute to professional financial advice and guidance. As such, if the reader places any reliance on this blog, he/she alone accepts all risks and damages. Although I am a licensed accountant, please schedule a formal meeting with a financial professional before taking any actions. I reserve the right to change the focus or content of this blog at any time.

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댓글 2개


bioncarolle
2020년 5월 28일

Very helpful article + budget template. Thank you.

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sashafarah400
2020년 5월 22일

Love this!

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