Second Step to Financial Success – Take Control

In the words of William Feather, ” A budget tells us what we can’t afford, but it doesn’t keep us from buying it”. The reality is, a budget can actually create a clear path to the things we really want, and keep the distractions away. Effective budgeting is the pathway to financial freedom. A budget is simply a plan; a guide outlining our expected income and expenditure for a given time period and it aids in allocating our finances, giving us better control of our money. A budget helps us to become proactive and not reactive to financial issues and helps us when making financial decisions.

Most people believe that budgeting is important but don’t know how. In this post, we will provide the necessary information for you to develop your personal budget and outline a step by step process to create, apply and amend your budget accordingly.

Step 1 – Get the Big Picture

When beginning your budget, be sure to have a record of all your income and expenses as we discussed previously in our post “Be in The Know”.A major downfall when creating a budget is not accurately accounting for our total income and expenditure. Tracking our finances is critical in ensuring we have the ‘Big Picture” of our finances. For this reason, we recommend when itemizing these figures that we create two categories, fixed and variable. Fixed expenses are the ones that remain the same from month to month such as mortgage/rent, loans and car payments and variable, being the ones that typically change from month to month such as utilities, entertainment, clothing and miscellaneous. Fixed income on the other hand is income that does not vary materially over time like your basic salary and variable income are those cash flows that can vary such as, overtime, commission, bonus etc.

Now it’s your turn, try to write down all of your monthly inflows and all of your expenses. Once you have these totals, subtract your expenses from your income. Is the figure positive or negative? If your figure is negative, chances are you are using debt financing incorrectly. (We will deal with that in our subsequent post). The final figure that we get after we cover our expenses is extremely critical, because it will to help determine how to better allocate our finances towards future items.

This “Big Picture” helps us identify areas for savings and expenses we can reduce or eliminate. This first step is extremely critical and if done correctly, will provide a great platform to build your budget.

Step 2 – Set Savings Goals

You will never truly master the art of budgeting if you do not have savings goals. What are you saving towards right now? A home, car, education, plan to start up a business or that long overdue family vacation? Do you know how much you need to make these goals a reality? These goals can provide the needed motivation and discipline for budgeting.

Step 3 – Set Timelines

When we get the big picture, we know the finances leftover after covering our expenses (residual income), and with the cost of our goals in mind, we can set realistic timelines. For example, if you wanted to purchase a vehicle for $100,000.00 and your residual income is $3,000, in three years, you will be able to purchase that vehicle. If that timeline is too long, you can look at your expenses and determine where you can cut back or you can also look at areas to increase your cash flow. You can also consider loans and other financing options which we will discuss further in our next post. If you are saving towards multiple goals, you will have to prioritize which is more important and allocate accordingly towards each goal.

Now it’s your turn again, write down your savings goals and put a price tag next to each one. Given your residual income, how long would it take to save towards each goal?

Step 4 – Get the Right Tools

It was Winston Churchill who said ‘We shall neither fail nor falter, we shall not weaken or tire… give us the tools and we will finish the job”. When creating a budget we also need the right tools, ones that can help us track, monitor, save and spend our money. We can opt to use online websites and software, for example, Quicken or Microsoft Money, or something more traditional such as a ledger or notebook can be used to lay out your budget. Online banking can be used to check, review, manage and allocate your finances. No need to go to a bank and stand in line, you can bank on the go with any of First Citizens free electronic services; online, mobile and telebanking.

Additionally you need the right accounts, whether savings, chequing, fixed deposit, investment accounts to execute your budget. Each individual’s financial situation is unique so it is important to meet with your banker and discuss your financial situation and future goals to determine the best tools to get the job done. You can also visit to view our wide selection of financial tools with the lowest fees in the market and competitive rates.

Step 5 – Refer, Revise and Re-commit

When building a house, the architect always consults his plans to ensure the end product is what was originally envisioned. Similarly, if we are to achieve financial success we too must refer to our budget daily. This will help us to stick to the plan and not fall prey to impulse buying. However, even the expert builder must know when he should deviate from the initial plan to maximize opportunities that may arise. Again, we must also be flexible enough with the right information and guidance to revise our budget when needed. Additionally, we must view our budget like a relationship; we may not always feel to adhere to our plan, we must re-commit at key intervals.

Though the budgeting process can be tedious at times, the end result is extremely rewarding. If you employ our five steps to budgeting, you will be able to charter a course towards your financial goals. Always remember:

  • Get the “Big Picture,
  • Set your savings goals
  • Create realistic timelines
  • Get the right tools
  • Refer, revise and re-commit

We do hope that you find this information helpful and practical. If you have any further questions feel free to message us on Facebook, Twitter, LinkedIn or email us at Stay tuned for our upcoming post “Managing Debt”.


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