A budget is basically a money plan which includes your financial goals. By having a budget you can plan to achieve your financial objectives and this means making frequent investments. Your budget will help you to know what you have coming in as income and what expenses go out each month allowing you the capacity to make adjustments for your investing.
You may have heard the old adage “pay yourself first”. The usual recommended amount is to put 10% of everything you earn into investment. This is where retirement funds and managed funds become useful as you can invest regular amounts without having to invest large sums. These funds, particularly retirement saving, can be taken from your pay packet before being paid to your account. This is useful as a way to “set and forget”. If it is taken out of your pay it will not affect your budget.
One of your first investment priorities is to set up an emergency fund. When you budget you need to put aside a certain amount of money for unexpected expenses as well as the normal anticipated spending costs. Start with setting up an emergency fund until you have three or four months worth of net income replacement in an interest earning call account. The regular amount you invest will depend on your expenses and outgoings. Once you have your emergency fund in place the money you were putting away can be redirected into other investments.
Save for annual goals such as holidays. Save a regular sum for your travel for annual vacations. Decide on the amount you need for your travel expenses. For example if you want to spend $6,000 annually you will need to invest $500 each month. As this is an annual goal it will be ongoing.
Saving for specific goals is done in a similar fashion to your vacation fund. First establish when you want to achieve the goal and then calculate how much you need to set aside to achieve this in the time frame you envisage. In this case $6,000 in five years will mean investing $100 a month (not counting for interest payments). That is the total sum divided by the number of years and then divided by 12.
If you have a surplus in your budget after catering for your goals then invest that surplus — provided there is no debt to clear. You are able to invest small sums into managed funds (mutual funds) and sometimes amounts as small as $50 are accepted as a regular monthly investment.
While investing is important to your financial security do not forget your commitments when doing your budget. This includes commitments that may be annual and even your gift giving, entertainment and other miscellaneous spending. Adjusting your budget to make frequent investments is all part of an ongoing budgeting plan.