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, but drawing up a budget is usually pure drudgery.
It’s safe to say that a lot of homes in Nigeria do not have proper household budgets. It’s also safe to say that most of the homes that do have a budget do not adhere to it.
The importance of having a budget and sticking to it cannot be overemphasized.
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.
- 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.
Your budget should be a ‘live’ process, which means you should be able to modify it as your circumstances change, but the fundamental principles will remain the same