LOUISE FAIRSAVE: A year’s salary
Is it so difficult to remember and to provide for the saving and investing aspect of managing money?
For sure, if you earn extra, some extra spending is warranted, but overspending is self-defeating. If you are in the situation where you earned extra during December and find yourself in a financial bind during January, you are in financial trouble even if you are not willing to admit it.
A good comparable example is to consider what would be your response if your employer decided to pay you your full net annual earnings for the year on the first day of January.
Would you splurge and have limited financial means for the other months of the year?
Budget, budget, budget: it comes down to having a budget and staying as close to it as you can. No one expects perfection but having a comprehensive plan for spending and saving will help motivate you to keep on track. The start of the year is a good time to consider your budget.
Drawing up a budget for our full annual salary received as a lump sum on the first day of the year can provide a brand new perspective: Let us start by setting out a column for each month and rows for planned expenditures. Then, we’ll label each column with the months in sequence and label each row starting with the expenses that are firm commitments, like rent/mortgage, utilities, food, toiletries, loan payments, transportation, and so on.
Next, let us slot in our discretionary spending, like dining out, movie-going and other entertainment.
Then add the desired amount of savings/investing we would like to do per month.
Before totaling up, let us check that certain one-off or sporadic expenditures have been included, like repairs and maintenance, school fees, licensing fees and property taxes and insurance. If this is the first attempt at budgeting, it is useful to add a miscellaneous item (say about five per cent of your annual net pay divided into equal monthly amounts) for real or contingent expenditures may be discovered as the year progresses.
The next important step is to add the totals for each row and for each column and to look at how the overall annual total compares to the sum you now have in hand. Don’t panic if you realise that you are treading close to the edge or even over it. To identify a problem is the beginning of problem-solving.
You can adjust to reach your target, for January is the month for resolutions. Resolve this year to start to get control of your finances.
One adjustment involves getting the overall total to be equal to or within the annual sum earned. This may involve cutting back on some discretionary expenses, or on savings and investments. Another standard way of assessing your expenditures and your savings and investments for the year is to evaluate what percentage of the overall total each row item is. For example, is the rent or mortgage payment more than a third of your net salary? Are you saving/investing less than 10 per cent? What percentage are you spending on food or, say, entertainment?
Alternately, this budget may also be balanced by planning and committing to working for any additional funds needed.
A financial plan and monthly budget help us to set out our hopes and dreams. They offer an opportunity to build a better balance as we live from day to day, from year to year. Keep in mind this year’s resolution: to plan to get control of your finances.