MoneySkills with Nelson Letshwene

Money & the psychology of money

Dealing with a budget deficit | Your Annual Budget – Part 2

Once your budget is done for the year, you will know whether you are working with a deficit or a surplus. We said if you have a surplus you can either invest the extra money, or take on another project.

WHAT IF IT’S A DEFICIT?

  1. You can review your budget to see if there is anything that needs to be cut down, or reduced, or eliminated altogether. Some things cannot be eliminated but they can be reduced or broken down into phases. Identify which items can be handled in phases and determine how much of them can be done this year.
  2. Figure out which months of the year seem to demand more money out of you. School fees paying months like January, May, and September could be your problems. Sometime people can be thrown off by just one month of the year. Keep your eye on these months and have a specific plan for them that will not derail your entire plan.
  3. Consider funding mechanisms very carefully
  • Consider ways of raising funds other than debt
    • Are there any assets that you can liquidate or sell?
    • Are there any investments that you can cash in for this year?
    • Do you have policies that are maturing this year?
  • Are you going to fund the deficit by debt? If so,
    • what kind of debt are you going to use?
    • How much?
    • What is the price of that debt?
    • How long will you be in this debt – how does this affect subsequent years? In part 3 of this article we will focus on this mechanism since it required more attention.
  • Consider new projects that can raise some money for you

HOW TO DEAL WITH BUDGET DEFICIT THROUGH POSITIVE PROJECTS

Is there a way of raising money that can help your budget for the year? The main reason for doing a reverse budget is to allow yourself room to grow. We all desire more, and by focusing on the things we want to achieve, invariably there is a shortfall in the budget. This gives you an opportunity to expand your means instead of trying to fit into your current insufficient means.

Positive projects are projects that you can get involved in that have a potential to expand your means.

  1. Do you have a business idea that you can initiate this year
    • How much time will it need from you? –
      • Can you commit enough time to make it profitable?
      • Do you have the time this project will require?
    • How much money will it require to get it started? –
      • Do you have the money to get this started?
      • Will this money come back?
      • When will it come back?
      • You don’t want to start a promising project that might leave you in bigger financial trouble. This project is supposed to rescue you, not drown you; so be certain!
    • Will it not conflict with your current source of income?
      • The worst thing you can do is to start something that conflicts with your current source of income to the extend that it jeopardises it. Unless it can replace your current source on a consistent, realistic basis, not just based on wishful thinking, then you should think twice.
      • If you signed a non-compete clause with your current employer or source of income, don’t jeopardise this. Some employers just require you to declare your projects before you carry them out.
    • How long before it starts producing positive income?
  2. Do you have a skill set or talent that you can monetize this year? A skill set or talent can be monetized in the form of a business idea. As with the business idea above, follow the thinking process outlined above.

 

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