The ‘sweet’ pain of balancing your personal budget

In a prefight scene from one of the ‘Rocky’ movies, Sylvester Stallone’s Rocky character looks into the unblinking eyes of his opponent, Mr. T, who, after a long silence and menacing glare, sums up in one word what he would shortly bring to Rocky: ‘pain!’  Admittedly, all my primary school days, I only knew the actor Sylvester as ‘Rambo’.

The prospect of creating and sticking to a personal budget may not be as frightening as stepping into the ring with Mr. T, but for most of us, it certainly promises pain.

This pain can come from two sources: first, the time and effort needed to start and maintain the budget. Second, the financial sacrifices that may be necessary to balance your budget. It would be nice if I could tell you that you will be able to reach all of your personal financial goals without making some sacrifices. If it were that easy, everyone would have attained financial security.

A personal budget is a tool that helps you reach personal financial goals. It is intended to be an organised way to compare income and expenditures over a defined time frame (a week, month, or sometimes a year). It should allow you to forecast your income and expenses, monitor your progress, and make changes as needed to achieve your goals.

The idea of a personal budget means different things to different people: at its most informal level, someone might think of a balanced budget as merely living within one’s means. That is, if you haven’t completely run out of money by the end of the month (or whatever time period you use), you have stayed within your budget. However, a good balanced budget should also give you information about where your money went, and provide the structure and discipline for making changes where necessary.

Whatever the form your personal budget takes, it should give you a detailed picture of how money comes to you, and how you spend it, within the reporting period you choose. I recommend that you choose a reporting period that gives the most accurate picture of your financial cash inflow and outflow. For most of us, this would be monthly, since most of us are on salaried jobs paid monthly and the majority of personal obligations are usually billed monthly. After you’ve selected your time period, you’re ready for income and expense budgeting.  Many individuals who set up personal budgets   only look at the cash outflow (payments), but I would strongly advise particularly small business owners to closely monitor their personal income as part of the budget-creation process.

Relatedly, although many small business owners would agree that scrutinizing personal expenditures is a necessary part of a personal budget, setting up and maintaining control over expenditures is often what you’ll find most difficult and tedious.

Once you know your income and expenditure streams, you can effectively manage to cut off on non-essentials and explore more income avenues. The pain then becomes a sweet song of economic liberation.

Have a blessed week-end as you balance your personal budgets.