Hawes: Income is the key to budget

MARTIN HAWES
Last updated 05:00 07/04/2013

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OPINION: When I write the word "budget", most readers will give a slight shudder and then move on as quickly as possible.

I would not like to be the spin doctor representing the word "budget": it has a nasty reputation with connotations of scrimping and saving and living a poor, mean and miserable little life.

This reputation is in spite of the fact that "budget" never hurt anyone and is clearly a poor, misunderstood little word. The term "a plan for income and expenditure" is a bit of a mouthful but, nevertheless, is a good definition for the much maligned "budget".

A budget is generally construed as cost constraint, however, it should more accurately be thought of as a plan for financial success. It is hard to imagine how anyone can have financial success if they have not planned from where they will get their money and planned where they will spend it.

The thing that most people forget when thinking about "budget" is that it has two sides; an income side and an expenditure side - and that a dollar added to income is every bit as good as a dollar subtracted from expenditure. For many, the general idea of "budget" is cutting expenditure when, in fact, the important idea is the bottom line surplus. This is more positively achieved by growing income than it is by reducing expenditure.

The best leverage that you are likely to have for financial success is to increase your income. There are several areas that this increased income may come from but the most likely is from your job or business. Earning as much as you can from the eight hours (or more) that you spend at work is always likely to give you the most bucks for your bang.

The first thing to think about regarding your work is whether you are working in the right field and, if so, whether your particular occupation is valued in the industry where you find yourself now. Working in the right field means a well-valued occupation that you enjoy and which is well paid. Some occupations are badly paid, given the skills required for the task, for example, I have often thought that nurses earn a pittance given what they do, and that if they applied their skills elsewhere, they would earn a great deal more.

Some industries pay much better than others. If, for example, you are in sales, you may find that your industry does not (perhaps cannot) pay well, retail sales have always paid badly even though a good salesperson on the floor may be highly skilled and add a lot of value. A top salesperson might be better in an industry that values salespeople and can afford to pay (for example, real estate).

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The principles of this are the same for those with businesses: there are plenty of people in business who have good business skills and who work hard, but who make no money (or not enough, anyway). Like employees working in the wrong occupation or wrong industry, they are putting their time, effort and energy into something which is never likely to give them the payoff that they should.

Whether you are in business or have a job, you ought not fish in a dry ditch. Any decent fisherman knows that if there are no fish in a particular river, you move to another one.

Retraining for a different occupation or learning a new industry (let alone closing down a business to start a new one) is not easy and takes time and money. However, the cost of moving to another river which might have fish, is better than spending decades in a dry ditch which certainly does not.

A dollar saved from expenditure is only a one-off addition to the surplus. However, a dollar that is added to income is a recurring boost to your finances: one that stays with you for the duration and which can be added to and grown forever. Saving money by working on the cost side of the equation is all well and good, but you will think better of "budget" and do better financially if you focus on the income side.

Martin Hawes is an authorised financial adviser and his disclosure statement is available free of charge at www.martinhawes.com. This article is of a general nature and no substitute for personalised financial advice.

- Sunday Star Times

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