Do you know how much money you need to live the life that you desire? Do you keep track of how much money flows through you? Understanding your financial situation is very important to crafting the future that you desire. If you want a life upgrade, you need to have an idea of your current financial circumstances so you can plan for your desired future.

Having a personal budget is an important way of planning your financial affairs. A budget will help you identify all your income sources and all your expenses, so you can plan how to manage your money better.

Not many people are excited about budgeting as they see it as a restriction on their ability to spend, I know this too well because that was how I felt at some point. While a budget may seem restrictive, in reality, it offers you the freedom to better manage your money with clarity since you would have your financial information laid bare before you.

Preparing a personal budget does not have to be a complex activity as there are many free budgeting templates and apps on the internet. Using a simple spreadsheet solution is also a good way of building your budget.

Some of the things you need to consider as you prepare your budget include:

1.    Have a clear picture of all your income; salary, gifts, investment gains, side hustle/ business, etc. Remember that your income is simply all the money that is available to you so if you still have to make any deductions such as fees or taxes, you need to factor that in. You also need to consider where your income comes from, how much comes in, and how frequently you receive it. Even if you do not have a specific amount for some of your income sources, you can always estimate an amount. A budget can always be reviewed or updated so it isn't cast in stone.

2.    Identify all of your expenses, the payments that you have to make periodically such as rent, feeding, transportation, school fees, and all other payments such as personal entertainment, family support, and holiday. Make sure you think through all the expenses you typically make so that you don't skip any item. After you have identified all of your expenses, you have to determine which ones must be paid compulsorily, which ones are flexible, and which ones you can do without.

3.    Set your financial goals after you have clarified your income and expenses. What do you want to achieve financially? What do you want to purchase? Which loans do you need to pay off? How much is your dream house or holiday going to cost? Based on your financial position, when do you think you can afford the things you have listed? You would be better able to determine your spending when you see your financial position.

4.    Determine how much of your income you would allocate to your various expenses. For example, rent is an annual payment for many people but you should not wait until it is due before you plan for it, you need to determine how much you will set aside monthly to address it. As you do this exercise, you could realise that some expenses you had previously prioritised are not as important as others.

5.    Determine how much of your income would go towards saving and investing. You should not spend all of your income on your expenses, you must also think about the future and the best way is to save for it. Remember your financial goals? This is how you will achieve them.

6.    Ensure that you do all of your spending through your banking or investment app. Limit your cash expenses as they are harder to track consistently. Using technology helps you keep a digital record of all your financial activity. Ensure that all spending is linked with the budget that you had previously prepared.

7.    Feel free to review your budget if the need arises, i.e.; your income or expenses change in some way. Remember it isn't cast in stone and it exists to serve your needs. As much as possible, do not deviate from your budget without cogent reason.

Whatever the state of your finances, always remember that proper planning will help you achieve the financial future that you desire. Budgeting will get you where you want to go faster than arbitrary spending. It is your key to achieving financial stability and security.

Gbubemi is a contributing writer to MoneyCounsellors.com