Have you ever been to a store to get one thing and then found that you left with 5 things, none of which was what you went to get in the first place? Or you saw that item that hadn’t crossed your mind before but it somehow called your name so loudly you just had to answer the call? If you’ve ever done either of these things, chance are you have Burning Money Syndrome where you buy things you didn’t ‘budget’ for.
A budget is a plan for your future income and expenditures that you can use as a guideline for spending and saving. A good monthly budget can help ensure you pay your bills on time, have funds to cover unexpected emergencies, and reach your financial goals. There are a lot of reasons why a budget might fail or why people give up on their budgets. It could be because there’s feeling that drawing up a budget is pure drudgery, or that having a budget limits spontaneity. In reality having a budget actually frees you up to have options. Once you have identified what has to be spent, then you know how much you have left for everything else.
It’s safe to say that a lot of people do not have proper personal budgets. It’s also safe to say that most of the people that do have a budget do not adhere to it. The importance of having a budget and sticking to it cannot be over emphasized.
There are different ways to build a budget and we will go through some basic steps to building your budget as well as some key principles to budgeting and practical tips to ensure you stick to your budget.
Building your budget:
- Detail your expenses: It’s very important that you develop a budget by detailing all your cost items. For example: shelter, food, clothing, transportation, fees, insurance, etc. Building a budget can be tasking as this is only effective if you can properly outline your spending. Well, you know, the devil is in the details and it’s right there in all the expenses that you have every month, every day, every weekend. One example of an expense is the daily snack. Just about everybody’s guilty of this, as we go to the eatery each day, and then get that N500 (just using an average figure) snack. Well, after twelve months, N500 adds up to N120, 000 for the year. That’s a big chunk of change on a non-essential item.
- Prioritize: When you are done outlining your expenses, you prioritize them in order of importance. This gives you an idea of what needs to be taken care of first. Your essentials contain the various items that you really cannot do without.
- Set Goals: Once you’ve tracked your budget and you’ve seen where your money is going, you need to also set goals for yourself. And you can have a small goal at first, maybe having N10, 000 in your savings every month. You can set yourself with a larger goal gradually.
- Add Up Your Income: To set a monthly budget, you first need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension and any other income including a spouse’s income if you’re married. If you get a salary, be sure to use your take-home pay rather than your gross pay. Taxes are usually taken out automatically, but if they’re not, remember to include them as another expense.
- Income versus Spending: Make sure you group all your essential expenses in one bucket. A key goal is to ensure that there’s enough income to take care of those essential items. Once you’ve totalled your monthly income and your monthly expenses, subtract the expense total from the income total to get the difference. A positive number indicates that you’re spending less than you earn: Congratulations! A negative number indicates that your expenses are greater than your income. This means you will need to trim your expenses in order to begin living within your means.
Let’s go through a few budgeting principles:
- Saving: The bulk of budgeting pains happen at the beginning. When you start budgeting, it will be a little difficult, but once you get the trick to it you would see results in no time. To effectively save money, you need to know where your money is going and weigh that against your value scale. Look at your phone bill, luxury spending like (outings and pleasure shopping); you might need to cut back on these luxuries to be able to meet your saving goals.
- Tracking: One of the important things about a successful budget is tracking what you spend. And, it doesn’t sound like a lot of fun. Certainly it’s not, because it involves detail record-keeping of even the smallest things. Every little expense in your budget can sneak up on you later, and then you’re asking the age-old question, “Where did the money go?”
- Practicing: Like everything in life if you want to be good at something you must practice and keep at it. Practice makes perfect. After you have a budget in place and you have fine-tuned it with a couple of months of actual spending, tracking your expenditures becomes almost automatic. A lot of people have unrealistic projections. If you are determined to make budget work, then you’ve got to be realistic. Don’t start off trying to save 50% of your income, especially when you have dependants to take care of. You have to make realistic budgets based on your circumstances.
- The key to spending within your means is to know your expenses and to spend less than you make.
- If you find you aren’t able to follow your budget successfully, it may mean that your plan isn’t flexible enough. It can take revisiting your budget a few times to find the balance that works for you.
- Stop mindless overspending. Life is full of temptations and you don’t have to give into everything all the time.
- Learn to say, ‘No’. You can’t afford to say yes to every request/desire, whether it’s buying yet another aso-ebi fabric or pair of shoes, sponsoring friends to a day/evening out or being unduly generous with financial gifts.
- “Always pay yourself first” – by this I mean set aside your savings.
- Plans for any future children’s education, your first home or your eventual retirement must be included in your budget. These are longer-term goals we all have to plan for. And these goals are attainable provided you plan for them properly.
The more thought and planning you put into the ways you manage your money, the more options you give yourself to make wise money choices.