Effective Personal Budget for Financial Freedom

It is not a bad thing when the budget for a country is in deficit, like the recent Malaysia budget for 2011. The additional fund is needed to boost the economy, increase productivity, attract foreign investment and provide more employment opportunities for the people. Ultimately the aim for Malaysia is to be a higher-income nation in 2020.  A personal budget is a different story. We cannot afford a budget deficit. We must budget for a surplus. Consider the following points to design a personal budget for financial freedom.

·         Expenses should be less than income: You cannot incur debt to cover your monthly expenditures. Debt attracts interest and it will snowball beyond your means to settle. Your expenses should be lower than your take-home pay.

·         Effective use of surplus fund: You budget for a surplus so that you can build up an emergency fund to meet unexpected outlay; In addition, you can save up to buy a big-ticket item. Most importantly the surplus fund is to be saved and invested for your children’s education and your retirement needs     

·         Explore other sources of income: It is prudent to look for additional sources of a fund should you need more money to cover a shortfall in your budget. Turn your hobbies, such as photography, into a lucrative source of income or use your language skills to run tuition classes. 

·         Stretch your dollar: Shop according to your shopping list only and take advantage of coupons. Shop for an item especially when it is on promotion.

·         Reduce unnecessary expenses: Look at your monthly expenditures and trim your expense budget.

·         Save for a bigger down payment for your car and home: Saving more for a down payment means paying less in monthly installments and getting a shorter loan period.

·         Save for a big-ticket item: It is better to buy in cash instead of incurring interest to buy a big-ticket item.

·         Loan repayments are part of your monthly budget: Your budget is inclusive of your housing and car loan repayments. If you cannot factor into your budget you are not in a position to obtain a loan 

·         Identify wants and needs: There is a difference between wants and needs. You can budget for your needs but not your wants. There is no way to satisfy wants with limited income.

·         Use credit cards wisely: Credit cards are not for getting credit. Use credit cards to reduce your expenses and purchase of big-ticket items in instalments without interest.   

Financial freedom is about living without debt. It is about investing your surplus fund to grow your wealth. Ultimately when you retire, you can depend on your passive income such as rental income and dividends to live a carefree and easy life.

Related article: Personal Budget for Financial Freedom