It is imperative that everyone, no matter the status, must have an emergency fund. The importance of budgeting cannot be understated.
Although, when one is comfortable with a well-paying job, steady income stream, good accommodation, a couple of top notch cars, one is tempted to believe that downsides do not happen, life experiences have shown that good things don’t last forever.
A budget, also known as cash flow, is arguably more important than the actual cash that you have in your bank and investment accounts. Your cash flow is what allows you to pay for everything.
Budgeting should be something that everyone does, regardless of their financial situation, as it is a great tool for managing one’s finances. Without knowing your cash flow, you could be putting yourself into a bad financial situation and not even know it. You can only get by without knowing your cash flow for so long before you get into financial trouble, so, make sure you know the flow of your cash.
However the capacity to this is based on the ability to efficiently budget one’s income and expenses. In general, traditional budgeting starts with tracking expenses, eliminating debt, and once the budget is balanced, building an emergency fund.
To speed up the process, you could start by building a partial emergency fund. The key is to build the fund at regular intervals, consistently devoting a certain percentage of each paycheck toward it, and if possible, putting in whatever you can spare on top. This will get you to think about your spending, too.
Although eliminating expenses entirely is the fastest way to a solid budget, substitution tends to have more lasting effects. People often cut too deep and end up making a budget that they can’t keep because it feels like they are giving up everything.
Substitution, in contrast, keeps the basics while cutting down the costs.
For example, taking a pre-packed home cooked lunch to work can be a substitute for the high end restaurant near your office that you patronise every afternoon.
Next is finding new sources of income. If you simply increase your income without a budget to handle the extra cash properly, the gains tend to slip through the cracks and vanish. Once you have your budget in place and have more money coming in than going out along with the buffer of an emergency fund, you can start investing to create more income.
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