Whether you’re new to financial planning or have struggled with it in the past, Ray Robertson has some pointers to help you keep your finances on track.
ILLUSTRATIONS COURTESY OF Freepik
Whether you’re new to financial planning or have struggled with it in the past, Ray Robertson has some pointers to help you keep your finances on track.
ILLUSTRATIONS COURTESY OF Freepik
We’re already into the second quarter of the year, and my daughter Amy, 13, and I have been talking a lot about resolutions for the months ahead. We’ve discussed academic aims, household chores and a pocket money increase, and our little chats have got me thinking about my own ongoing plans and responsibilities for 2023/ 24.
Importantly, I’m determined to spend smarter, starting now. As a husband and father, you’d think I’d have family budgeting sussed by now, and in many ways you’d be right. But as I’ve grown older, I realise I’ve let things slip. I no longer keep a tangible record of my monthly incomings and outgoings; I don’t actively balance my books. It’s time to go back to a monthly budget plan, and stick to it.
Planning a budget is easy, and there are so many great ways to make it smar t. My wife does her personal accounts each month, as a matter of course. This comes as naturally to her as breathing, or, as she says, watching her weight (and my gout problems) by keeping a food diary.
BALANCE YOUR BOOKS
In creating your budget plan, you’re obviously going to write down your mor tgage or rent, insurance, utilities, cell phone, cable and creditcard payments, plus food and ferry/ taxi costs and school fees. But that’s not all. You also need to account for your ‘discretionary’ expenses, like meals out, cinema tickets and gym membership – absolutely everything.
Look at your bank book and note any recurring expenses that you had forgotten about, or underestimated. Writing down all your outgoings will help you assess whether they are all entirely necessary. For me, actually seeing (in black and white) how much I spend on golf each month has encouraged me to hit the links a little less.
When making a budget plan, be sure to overestimate a little on your expenses. For example, if your rent is HK$28,000 a month, round it up to HK$30,000. This way you buy yourself a little wriggle room, and make the math easier. If you overestimate all your known expenses, then you’ll have a built-in cushion in case an unexpected expense arises (say, a sale at Escapade Sports).
While you’re at it, underestimate your income a little bit, too. If you typically bring home HK$58,000 a month round it down – log it into your planner as HK$55,000. Again, this will give you a small but handy buffer in case you need it. If you end up with extra cash at the end of the month, you have the chance to treat your family to something special.
AIM TO SAVE
Certainly savings need to figure in any serious budget plan. In this uncertain economy, everyone needs a nest egg, so aim to set aside 10% of your yearly income. While you may not notice the sum deducted from your current account each month, you’ll appreciate the sizeable extra saved by the end of the year.
Your only good excuse for not saving is if you’re using all of your ‘extra’ money to pay off credit-card debt. Priority number one in creating your budget has to be eliminating debt. It’s essential to recognise that borrowing from your bank is like taking out a loan. It really is a fool’s game. If you don’t pay your bill in full every month, you’ll be charged interest and owe more than you originally spent.
If you’ve ever written a cheque knowing you didn’t have the money in your current account to cover it, but that you would by the time the cheque cleared, you’ve kited. Kiting may seem harmless, but it’s never a good idea, because if you misjudge the timing, you could bounce a cheque, which in turn could cause another payment to bounce. Letting this happen is not only embarrassing it’s expensive, as most banks charge outrageous fees for overdrafts.
Of course, we are not only accountable to our bank managers. I always try to remember that Amy is watching my spending and budgeting habits. If we spend more than we should, or live beyond our means, our children will likely follow our lead. But if we’re financially responsible and thrifty, they’ll learn these good habits, and use them to be more successful and less stressed in their own adult lives.
DON’T PUNISH YOURSELF
The aforesaid notwithstanding, don’t plan a budget you know you will never be able to keep. Your budget plan should be just as reasonable and achievable as your diet regime or exercise programme.
If you’ve never been able to save well, or are a compulsive spender, don’t expect this to change overnight. Instead, make small changes and take small steps towards your overall budget goals.
You’re looking at a long-term strategy, so don’t be punitive. Any sensible budget plan should include an expense entry of at least HK$1,000 per month for unexpected costs. This will cover anything you’ve forgotten, like flowers for Mother’s Day, or anniversary drinks. If you figure unexpected expenses into your budget, you’ll never be short of cash.
Once you’ve completed your budget, have a copy of it handy. Keep it in your bankbook, or diary. When you’re looking to spend a large sum of money, pull out your plan to see if you can afford to do so. See where you can make small cuts to cover your additional costs, or work out how they can be absorbed into your budget over the coming months. In my case, it’s always possible to reduce money spent teeing off.
Every few months, review your budget and make updates or changes according to how you’ve actually been spending. For example, if you change mobile phone plans, and are now paying a lot more or less, update your budget to reflect that. If you notice you’re spending more on utilities or taxi fares, increase that part of your budget, but be sure to take the required funds from somewhere else, like meals out or date nights.
Think of your budget as a scale, where the two sides ought to be equal. If you take something away from ‘income,’ you need to take something away from ‘spending’. Keep these tips in mind and you’ll be able to come up with an ef fective and fully personalised monthly budget. You should even be able to save a little.