Surely there must have been questions, as children, that were raised as to why extra cookies and crisps are included in the monthly grocery for the current month but not for the next. Ingredients for a much coveted milkshake are bought for another and not for the succeeding months.
This is the most basic example of budgeting that parents often teach their children at a very young age. It shows how control over the budget is maintained by showing them that it is alright to splurge on food that is purely for indulgence from time to time as long as it is not done in excess. This practice promotes flexibility in budgeting ensuring that it will take its full effect.
For a budget to be sustained in the long term, control and flexibility are the main points that need to be applied. These elements are essential in helping an individual understand where their money is going and also allows them to develop a plan where they can easily track spending, save, and more easily monitor and reach financial goals.
A flexible budget will help track and adjust spending each month. It helps to work the budget around priorities which is particularly important when one is hoping to build savings or work towards a larger financial goal. The biggest advantage to a flexible budget is that it more accurately reflects the state of an individual’s finances.
How To Create A Flexible Budget
List your spending – When it comes to budgeting, everyone has their own approach. However, no matter what your personal approach is, we believe that the best way to start is to make a list. Making a list will enable you to simplify and organise your spending into categories that will make it easier for you to track your expenses.
Organise your spending by categories – Now that you have made a list of all the things you spend on, the next step is to organise these expenses into categories. If you are not confident about which categories to make, you can organise it this way:
• Fixed expenses – These are bills that are already fixed and with little to no room for change. This could include electric bills, internet bills, housing costs, rent, medical expenses, and loan payments just to name a few. Ideally, you would like this section to account for less than half of your take home pay.
• Flexible expenses – These are expenses that can still be adjusted and have room to move. This will generally include categories like the Daily Expenses for groceries and coffee, your transportation budget and shopping. These are the expenses that you can’t cut out altogether but which you can adjust if need be.
• Unnecessary expenses – These are expenses that make up your bills for leisure and entertainment purposes. If you need to find money, you can take it out of the bar tab with no real impact on your life.
• Savings – This is the portion of your income that you would like to set aside both for savings and future priorities. This could include saving up for a dream vacation or setting aside extra money for retirement. If possible, you’d like this to come to about 20% of your overall budget. (This is known as the 50/20/30 approach. Half of your income goes to necessities, 20% to savings, 30% to everything else.)
Prioritise Necessities – After you have organised your spending into categories, it is time to identify your priorities. In doing this, you have to keep in mind that a flexible budget is more than just avoiding going over budget. Prioritising is also about ensuring that your spending is based on what matters more to you. Knowing your priorities will help you organise your spending based on what you want to achieve.
Track your Spending – Now that you have made a flexible budget plan, the next step that you have to repeat over and over again is to track it prospectively every month. No matter how tedious the planning process is for coming up with your budget plan, there will always be unanticipated expenses that will arise and being updated of all these unwarranted circumstances will help you preserve your financial priorities. A flexible budget is about responding to new expenses over time, so that in the long run your spending remains relatively consistent where it counts.
Professionally Approved Flexible Budget Plan You Deserve
Making a flexible budget plan for your household should be easy since you are the one that knows every aspect of your income and expenses already. Although this may be true, a little help from people that are proficient and experienced in the field wouldn’t hurt.
At Forward360, our team of professional and highly experienced financial advisors will help you manage and grow your wealth. We will closely work with you in creating a household budget that will ensure better cash flow management that will eventually translate your financial planning journey to a brighter, wealthier tomorrow.
Elizabeth Fountain has over 7 years of experience in the
Elizabeth’s goal is to make a difference every single day, and work alongside clients to transform hard work into real financial value. Whether you're an individual or couple on the road to financial freedom, Elizabeth will listen closely to your needs and find the perfect solution focused on your wealth and lifestyle goals.
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