Personal budgeting and saving
Yvonne Harvey, Contributor

It is such a pleasure to be back with you for this new year. This week's topic is of great interest to all persons regardless of age. Especially in this time of world economic recession, it is important that persons have a clear budget that they stick to.

A budget is a financial plan of proposed or expected income and expenditure. All individuals should relate what they spend to what they earn. The art of doing so is through proper budgeting. Budgeting means planning what you pay out in relation to what you earn. If careful budgeting is not practised, one will spend unwisely and not have enough to spend on what is necessary. The key to proper budgeting is to know one's income and to balance expenditure in line with income.

In the same way that a country publishes its annual budget, its income and expenditure for each year, an individual or family should have an idea of how much they earn and how much they intend to spend. They should try to maintain a balance between their income and expenditure.

To persistently spend more than one earns will, in the long run, lead to serious debt. Everyone should have a financial plan or budget. It is unwise to spend all one's income immediately, something should be put aside for a 'rainy day'.

Here is a simple example of a budget, with expected or proposed income on one side and expected or proposed expenditure on the other side.

Savings is shown separately. It is regarded as expenditure and is put on that side of the proposed budget - one should attempt to set aside something on a regular basis and put it into interest-bearing accounts in some financial institutions, for example, commercial banks, credit unions, building societies, insurance companies and so on.

Personal savings

Many people save a part of their income. To save means to refrain from spending on consumer goods and services.

Specific purposes/reasons for which savings are used (motives for saving):

1. To provide for the 'rainy day'

2. To use during emergencies

3. To start or complete planned, long-term projects

4. To pay for a vacation

5. To pay for major surgery

6. To pay for higher education and different forms of personal development

7. To pay the deposit on house, land, cars, etc

8. To invest in a new business

9. To buy stocks, shares, treasury bills, bonds, etc

10. To use as an inheritance to leave for children and other relatives

11. To pay for car repairs, car insurance and other car payments

12. To pay for personal items, including clothes, shoes and hairdresser sevices

13. To put aside for retirement, especially if no pension is expected.

There are various ways and means for a working person to save some of his/her earnings. Consider the following ways:

• Put it in a commercial bank or other financial institution on different types of deposit accounts
• Through an insurance company, especially with an endowment policy which matures before the death of the insured person; this is an important means of saving
• Partner, also known as sou-sou
• Saving in piggy bank or money box (no interest received)
• Thrift club - no or very low interest
• Purchase securities on the stock exchange
• Vaults

Many people find it easier to save if they sign a standing order to transfer 'X' amount of money each month to a savings account from their current accounts. Some employers will make deductions from wages, if requested by employees, and pay these into a financial institution on behalf of their employees.

Now, your task is to draw up a personal income and expenditure for yourself. Be sure to include savings and miscellaneous items. Then, suggest TWO forms in which you would like to save and TWO reasons for saving.

Yvonne Harvey teaches at Glenmuir High School. Send questions and comments to kerry-ann.hepburn@gleanerjm.com