How an effective budget can turn your year around

When setting goals for the new year, planning annual finances should feature as highly as physical health. Budgeting is one of the most effective ways of managing financial health.

If you and your employees are new to budgeting, it might seem like too much effort, or too restrictive. “The reality is that you have far more to gain from working with a budget than without one. Being in control of your monthly finances is an incredibly rewarding feeling. Start your year off with a budget and the results will only be positive,” says Akash Dowra, Head of Client Insights at Discovery Bank.

Share the following five benefits of budgeting with your employees

• Budgeting prevents you from overspending on things which don’t actually benefit you in the long run. It puts you in control of your money.
• It helps you see how you can realistically reach the financial goals you have set.
• Not knowing if your money will take you to the end of each month is stressful. Working out a budget means you know exactly how much you allocate to all your different needs without having to worry about getting through the month.
• It can be flexible. If you decide to spend more on one need and less on another as the month goes by, that’s fine, as long as you don’t cut down on saving.
• It helps you save. Once you have a budget in place, saving becomes easier.

How budgeting can help you and your employees save

“Drawing up a budget and sticking to it means you decide beforehand what you’ll be spending your available money on. Changing to a savings mindset means that saving money should be the number 1 priority in your budget – not spending,” says Dowra.

When drawing up a budget and comparing it to previous months’ spend, you will also see where you’re actually wasting money or even just using it incorrectly. “This ‘wasted’ monthly spend is money that can go towards paying off debt and to savings. Seeing that you actually have more money than you thought, will help you reach savings goals you previously thought were unattainable,” Dowra adds.

Tips to make monthly budgeting simple

Budgeting doesn’t have to be complicated and time-consuming. Share these simple tips and empower your employees to help make it a hassle-free, rewarding exercise for them:

• Track spending for a month – This will show exactly where your money is going and how small amounts add up.  
• Look for three areas where monthly spend can be improved – Most of us don’t overspend in all categories, but only a few. This could be cellphone usage, buying clothes we don’t need or going out too often. Having tracked your spend for a month, these areas will show up. Choose three of these and start managing your spend there. 
• Make saving a top priority – Remember your goals and that the reason for a budget is to save. 
• Allocate percentages of income – As a starting point if you’re struggling to decide how much to spend on too many different budget categories, simplify your budget using the 50/20/30 Plan. 50% of your income is set aside for necessities, 20% for long-term savings, and 30% for lifestyle choices.

“Many of us are reluctant to start following a monthly budget because we know it means we may need to cut down on some unnecessary spending. But managing your household expenses should be more motivating than daunting,” Dowra says.

“Budgeting doesn’t mean you can’t spend money on anything fun or treat yourself now and then, it just means that you’re keeping track of what you’re spending. Being aware of where your money is going will help you make smarter financial decisions and ensure you don’t fall unwittingly ‘behind’ or into debt,” he says.

“It can also be rewarding. It can help you pinpoint those items or activities that are unnecessary and rather redirect valuable funds for better use – like into a home, an unexpected medical expense or a good holiday,” says Dowra.