Budget – Elements 1

Budget

This post is part of the Elements series, a Periodic Table of all the Investing Elements that you need to take control of your financial life. You can find the rest of the posts here.

Your Budget

What is it?

A budget is a plan to make sure that you spend less money each year than your income.

It helps you allocate your income towards your financial goals, so that you don’t spend money intended for one thing on something else.

You can also think of your budget as the Income Statment from your personal Financial Statements.

You can learn more about budgets here and here.

What kind of element is it?

A budget is a document, or more precisely a spreadsheet.

Who needs it?

Everybody needs a budget.

What comes before it?

Nothing. A budget is the first step on your financial journey.

What comes after it?

Everything. The most closely related elements are your Financial Statements and your financial Plan.

What age do you need it from?

As soon as you start earning your own income, and paying your own expenses.

What age do you need it until?

For the rest of your life. Even in retirement (decumulation) you need to make sure that you are living within your means.

How much does it cost?

It needn’t cost you anything, apart from your time. There are templates available all over the web, including here.

You could get help from a financial adviser or planner, but this would cost you hundreds of pounds, and it isn’t easy.

What’s in it?

All of your income sources, and all of your expenses.

What does a good one look like?

The format isn’t too important. A good budget is one that is comprehensive, and at the correct level of detail.

You might want to know how much you spend each month on eating out, but probably not how much you spend on French food versus Chinese food.

What does a bad one look like?

A bad budget is missing items, or is at such a high level that it won’t allow you to take control of your finances.

Any recommended brands?

There are no brands here, this is home-brew. I would recommend using a free online spreadsheet like Google Sheets so that you can easily make changes to the budget once you have constructed it.

What are the main risks?

The main risk is leaving out some of your expenses, so that you think that you have money left over each month for saving, but in reality you don’t.

How do you deal with these risks?

Make sure that you go through your bank statements and credit card statements for the past twelve months. That should make sure that you have included everything that you needed to.

Until next time.

Mike Rawson

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 35 years, with some success.

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Budget – Elements 1

by Mike Rawson time to read: 2 min