In the final episode of Taking Stock, Mirriam MacWilliams, Chief Trainer/Wealth Mentor, teaches you a final tip on how to budget.
Video 7 – Budgeting
How to budget correctly?[/text_block]
HOW TO BUDGET CORRECTLY?
So that’s why I believe that we should set aside time, to decide how we want to manage our finance, so that we eliminate surprises.
How can we allocate our budget to prevent overspending?
Overspending can happen easily, and we may not be aware of it until we find shortfalls in our cashflow. What you should do is see how much capital you have, for example, at a given month, and the very first thing that you have to do is pay yourself.[/text_block]
Setting aside something to pay yourself first, creates a behaviour to take the very first step. And that is to set aside something where you pay yourself first.
What should we do with the remaining money after setting aside for bills and savings?[/text_block]
For example, if you are not being looked upon for certain promotional considerations at your job, might it be that your skills are a little static, might it be that you need to enhance or upgrade your job skills, might it be that you need to invest in your education, in terms of how you are going to manage money. Remember, invest in yourself, anything that makes you or upgrades you.
So we set aside money for our future, in terms of our savings. We also set aside money for ourselves. Then we can start thinking of saving money for our living expenses. After that, set aside a certain amount of our capital to have fun with. And then, set aside money for our tithing.
If we have a 10,000 dollar gross monthly salary, how do we allocate our expenses?
Our retirement would comprise of 10 percent, or about 1,000 dollars. This is on a monthly basis, so we are able to now systematically save for our retirement.
Next, we have to invest in ourselves, our education. Again, 10 percent is being set aside for that.
The unexpected expenses – another 10 percent, another 1,000 dollars. This is important because this takes a lot of people by surprise. And the idea of budgeting is to provide us with a sense of peace and security.
Our living expenses make up a big part of our expenses – the rent, the grocery, childcare.
Tithing needs to take up another 10 percent. In this case, another 1,000 dollars. To our charities.
And the all-important fun money makes up about 5 percent.
How do we factor unexpected future needs into our monthly allocated budgeting?
The personal budget chart is divided according to the different months of the year so we can make adjustments if the need arise.
For example, we start out with a 10,000 dollar gross monthly income and out of the 10,000 we have set aside with different percentages, for our budget.
And at the end of month, we realise that we are experiencing a 500 dollar shortfall for the month and this 5 percent here will have to be adjusted from someplace else.
Is this 5 percent going to come from your fun money, so you end up punishing yourself? Is it going to come from your tithing account or from the money you had set aside to pay yourself first?
The idea is that we don’t want to incur shortfalls in our budget. We want to be able to plan ahead. Planning ahead ensures that we know well in advance, that this is not the month that we will be able to participate in this additional 500-dollar expense, on our dues and subscriptions, so we can bring our monthly expenses back in line with our current spending.
Again we plan first, once we have planned, and we have budgeted, then we allocate. If in fact you were to experience a shortfall, then of course, of all the logical places, it would have to come from the account that is set aside from those unexpected living expenses.
But then realise that at some point, the 5 percent needs to be replaced.
What if there were a surplus?
If you have one month where instead of your 5,500 dollars – you only allocate 5,000 dollars for living expenses. For this particular month, you are going to have 500-dollar windfall. How would you allocate this 500 dollars?
You can re-allocate that 500 dollars into our retirement, investing in ourselves, back to unexpected living expenses – 275 dollars actually goes right back to those committed expenses, etc.
So now, you even have a few extra bucks for fun.
Cover all your bases. The idea is to eliminate shortfalls and to maintain a systematic and consistent ability to be able to set aside income for those future and unexpected expenses.
The emergency fund is very important?[/text_block]
Sunny Burgher, Graphic Designer
“Using 2 of Mirriam’s strategies, we were able to move to a downtown loft with ocean views and almost 3x the space. And I was able to purchase with cash from only 2 trades… my 1st convertible (car)!”
Boyd Sheum, Management
“My account was 108% gain… quite a good achievement for newbies like me. Now I am able to keep my full time job and have fun in the evening to make more money for my retirement fund.”
It is best to have that money already set aside for those rainy days. That way, you have a systematic system, cashflow.
Budgeting means to set aside, and it’s nice because budgeting, setting aside capital creates a certain sense of peace. It creates a certain sense of comfort for us, that whatever need it is, that our children may have, our ourselves, that we might have, they are covered.
When it comes to allocating money for savings, how much is too much?
I never think that savings is too much. It is always good to have savings but don’t have so much savings, that you sacrifice your fun account. Or don’t have so much in savings, that you don’t invest in yourself.
If all things are balanced in your allocation, there is no such thing as saving too much.
Remember, saving now – use your capital to further grow it. We want to be able to then take that savings, and have that capital growing in two ways. One, because we are continuing to add to it and because that capital itself is being promoted. Once we have the ability to have that capital grow for us, we never save too much.
Should we set aside a budget for investing?
That group falls under savings – have it sent to a brokerage account. Let the capital sit there, until an opportunity arise to have the capital grow, and then you invest it.
We don’t want money under the mattress. The money has to be working for us, or it is losing value. It can potentially be losing value, because it is not keeping pace with the cost of goods and services, for example.
So, let’s be smart, savings is not in the piggy bank, but somewhere else as investments.[/text_block]