Budget and Budgeting

Budget – an estimation of revenue and expenses over a

specified future period of time and is usually compiled
and re-evaluated on a periodic basis.
Explanation: A budget is essentially a financial plan that
outlines expected income and expenditures over a
specific period. It helps individuals or organizations
manage their finances by providing a roadmap for
spending and saving. Budgets are typically revisited and
adjusted periodically to reflect changes in income,
expenses, or financial goals.
Budgeting – is the process of creating a plan to spend
money; this allows one to determine in advance whether
he/she will have enough money to do the things he/she
needs or likes to do.
Exp: Budgeting is the process of creating and managing a
budget. It involves analyzing income sources,
categorizing expenses, setting financial goals, and
making informed decisions about how to allocate funds.

Seven Steps to Good Budgeting

• Step 1: Set realistic goals. Goals for money will help

make smart spending choices upon deciding on what is
important.
- Define clear financial objectives. These goals guide
spending decisions and help prioritize what’s
 important. For example, saving a specific amount for
a vacation or paying off a certain debt within a set
timeframe.
• Step 2: Identify income and expenses. Upon knowing
how much is earned each month and where it all goes,
start tracking the expenses by recording every single
cent.

- Know how much money is coming in and where it’s

going out. Track and record all expenses to get a
comprehensive view of financial flows.
• Step 3: Separate needs from wants. Set clear priorities
and the decisions become easier to make by identifying
wisely those that are really needed or just wanted.
- Prioritize essential expenses (needs) over
discretionary spending (wants). For instance,
groceries and rent are needs, while a new gadget
may be a want.
•Step 4: Design your budget. Make sure to avoid
spending more than what is earned. Balance budget to
accommodate everything needed to be paid for.
- Create a budget that aligns income with expenses.
Avoid overspending by ensuring that expenses do
not exceed income.
• Step 5: Put your plan into action. Match spending with
income time. Decide ahead of time what you will use
each payday. Non-reliable credit for living expenses will
protect one from debt.
- Implement your budget by tracking expenses,
sticking to spending limits, and avoiding reliance on
credit for everyday expenses.
• Step 6: Plan for seasonal expenses. Set money aside to
pay for unplanned expenses to avoid going into debt.
- Anticipate and set aside money for irregular or
seasonal expenses like holidays, vacations, or home
maintenance to avoid financial strain.
• Step 7: Look ahead. Having a stable budget can take a
month or two, so ask for help if things are not getting
well.
- Regularly review and adjust your budget as income
or expenses change. Seek help or advice if financial
challenges arise to maintain financial stability.

Spending- involves the allocation of money towards

goods or services. It encompasses understanding how to
manage money wisely, make informed purchasing
decisions, prioritize needs over wants, budget effectively,
and avoid unnecessary debt.

The following are practical strategies for setting and

prioritizing budget goals and spending plans:
1. Start by listing your goals.
- Begin by identifying and listing your financial goals.
These could include short-term goals like saving for a
vacation, medium-term goals like buying a car, or long-
term goals like retirement savings.
2. Divide your goals according to how long it will take to
meet each goal.
- Categorize your goals based on their timeline. Short-
term goals typically have a timeframe of 1-3 years,
medium-term goals range from 3-7 years, and long-term
goals extend beyond 7 years.
3. Estimate the cost of each goal and find out how much
it costs.
- Determine the financial requirements for each goal. For
example, if your goal is to buy a new car, research the
cost of the car you want along with additional expenses
like insurance and taxes
4. Project future cost.
- Consider inflation and potential changes in expenses
over time when projecting the future cost of each goal.
This ensures that your savings account for potential
increases in prices.
5. Calculate how much you need to set aside each period.
- Break down the total cost of each goal into manageable
savings contributions. Determine how much you need to
save monthly or weekly to reach your goal within the
desired timeframe.
6. Prioritize your goals.
- Rank your goals based on their importance and urgency.
Consider factors such as financial stability, emergencies,
and long-term aspirations when prioritizing your goals.
7. Create a schedule for meeting your goals.
- Develop a timeline or schedule that outlines when you
aim to achieve each goal. Set milestones along the way
to track progress and adjust your plan as needed.

Investment and Investing

Four aspects to consider in investing money:
Investment: An investment refers to the allocation of
money or resources with the expectation of generating
income or profit in the future. Investments are made with
the goal of increasing wealth over time. There are various
types of investments, including stocks, bonds, real estate,
and mutual funds.
Investing: Investing is the act of committing money or
capital to an investment vehicle, such as stocks or real
estate, with the expectation of earning a positive return
over time. Investing typically involves taking calculated
risks to achieve financial goals, such as saving for
retirement, funding education, or building wealth.
1. How long will you invest the money? (Time Horizon)
- Time horizon refers to the length of time you plan to
keep your money invested. It could be short-term (1-3
years), medium-term (3-5 years), or long-term (5+
years).
2. How much money do you expect your investment to
earn each year? (Expectation of Return)
- Expectation of return is about the amount of profit or
growth you anticipate from your investment annually.
3. How much of your investment are you willing to lose in
the short term in order to earn more in the long term?
(Risk Tolerance)
- Risk tolerance is your comfort level with potential
investment losses. It varies from conservative (low risk)
to aggressive (high risk).
4. What types of investment interest you? (Investment
Type)
- Investment type refers to the specific assets or
categories you’re interested in investing in, such as
stocks, bonds, real estate, or mutual funds.