A personal budget that meets your needs
This is Week 4 of the Bermuda 14-week plan to dramatically improve your finances.
Reader questions arise, such as where do you get the energy to continue to deliver the message that financial planning is beneficial to everyone, when it seems that Bermudians have a tough time saving today.
Answer is, that we know from experience when individuals have the knowledge they need to work with, they have the confidence to make changes to control their financial destiny.
So, writing as a personal mission because you, dear readers, inspire me — to provide as much financial education, financial tools and resources as possible to help you become financially successful.
There are so many great stories of individual families who plan for life today, tomorrow, and as far as they can see into the future. We all know individuals who can inspire us. Their financial routines are disciplined and varied, just like the confluence of cultures, and personalities among our community. Incredibly hard work is a common theme because these families have set focused determined goals to succeed — no matter the odds of limited resources.
Some families never had a formal budget, but they knew the value of money:
• Heads of households who worked two jobs: the day job for someone else, the night job for the family. The extra income went immediately to reduce their mortgage principal balance and other debts.
• Families who built their homes themselves — after working all day. They didn't save with bank deposits; they used any extra cash above their living expenses (and a small cushion) to buy building materials. Some months, there was only enough cash for a few boxes of tiles. But, they persevered. It took years. They finally owned a home, a wonderful appreciating asset.
Making a budget becomes your personal guideline. Use your budget to keep you and the family focused and determined.
Basic steps to prepare your personal budget. Note that all numbers used in the revised budget chart are “guesstimates”.
It is your choice to use your realistic numbers. Know what they are!
I've used a family of three, with gross combined earnings of $100,000 a year — for two employed parents and a small child. Just about anywhere in the world, these salaries would be considered marvellous, but our island is a different, expensive challenge.
Enter your monthly net income – not the gross amount you earn, but the amount that is left after your payroll deductions for payroll tax, health insurance, life insurance, 5 per cent pension match, etc.
Guesstimate: $84,000 divided by 12 = $7,000 per month
Now list the necessaries. The bills you must always pay first: rent/mortgage, food, utilities, transportation, phone/cable internet, personal health care, day care, minimal clothing, shoe purchases. How many outfits do you really need? TBD.
Next the out-of-the-blue surprise, surprise bills that you completely forget about because they happen once a year. Divide those costs by 12: car/bike insurance, registration, land tax, life insurance, house insurance, etc. No you aren't paying them now, but you have to set aside the money for ‘don-de-road'.
Just Don't Know where the money went! This is the hardest category because most of it is slippage; that is, it just slips through your fingers every day. You must get control of the JSD cash spent. You may be appalled at just how much slipped. If you didn't ferret out those unidentifiable expenses during the week one, 90-day review, do it now.
Credit card payments. Yes, it sounds like duplicating costs since you've listed your expenses, too, that you pay by credit card. However, if you bought that “stuff” months ago, you still have to pay it back. Your goal is to have zero balance credit card each month.
Other — the catch-all list. Some people like to set aside money for holidays, birthdays, vacations, etc. Plug those numbers in divided by 12 as well — unless there are 12 birthdays. You get the point.
Keep track of your real cash outflow — ATMS! Check it monthly against your budget — are you ahead or behind? What can you cut back on, or alternatively earn to raise extra money? Coming soon in Week 6.
Do you have any cash left over? Your budget should include a monthly savings amount — that once you establish a controlled budget is the first thing you do. Yes, Save.
There. You have Your Simple Bermuda Budget Worksheet set up. I've input some guesstimate numbers, now you input your real income and expenses, then you decide what percentage you will try to save.
E-mail me for the revised Simple Bermuda Budget Worksheet in Excel or Open Office format. No computer — you can do this by hand.
Readers, Keep in mind. No one can sacrifice eternally, it becomes a terrible hateful chore; sometimes, you just need a reward — tiny. We'll discuss the Financial Rewards Chart next week.
Next Week 5 — Setting attainable goals or reaching for the sky. What is your definition of goals to achieve financial success?
Martha Harris Myron, CPA PFS JSM, Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad. https://americansabroad.org/ Principal: The Pondstraddler* Life™ Consultancy providing international financial planning, publications, presentations for Bermuda residents, their multinational families and international connections. Contact: firstname.lastname@example.org
Postscript to budgeting this week. Global capital markets the last two weeks have been extraordinarily volatile. Thousands of investors sold out of loss positions. These are tough investing lessons. Yet, many investors also weathered the storm quite nicely.
In Weeks 9 and 10 we discuss investments, but today, I leave you with three serious investment rules.
Rule number 1 — You cannot, should not, even begin to consider investing until you have built up a comfortable cash cushion, your personal debts are paid off, and your long-term debts, car, mortgage, etc. are manageable every month.
Rule number 2 – Invest in You, first. You are the biggest appreciating asset of all — consider further education as a number one goal. The more you learn, the more you will ultimately earn.
Rule number 3 – Never, ever invest in security markets of any kind if you cannot afford to lose it all.