With the surging cost of living, Kenyans are looking for ways to stay afloat now that salaries aren’t going up any time soon.
One of the ways to control your expenditure and differentiate needs from wants is by having a budget.
Budgeting helps you manage your money, control your spending, save more money, pay off debt, or stay out of debt.
Without an accurate picture of what’s coming into and going out of your bank account, you can easily overspend or find yourself relying on credit cards and loans to pay your bills. If you already have a budget, now’s a good time to update it.
The problem with most budgets is they don’t work. While they look at a typical month’s spending – what about birthdays and other one-offs? People tend to ignore a lot when planning.
Below are six ways you can budget with ease:
1. Gather statements and receipts. Lay the groundwork by compiling these financial records, as well as info on credit card debt, bills and one-off spending. This helps in your clarity.
2. Calculate Your Monthly Income. How much are you making? Budget with what will be in your account and not just the money you are hoping you might get.
3. Add Up Your Expenses
Some of your monthly expenses are fixed—mortgage/rent, property taxes, child support, and alimony—while others may vary, such as electricity, water, and groceries. List all the fixed expenses and the amount of the expense.
4. Set your spending limit
The money you have left after expenses is your spending and saving money. Your spending money is for ‘wants’, such as entertainment, eating out and hobbies.
Make a plan for what you want to do with your spending money. This will help you to see where it goes and keep within your spending limit.
5. Go with the 50/30/20 Rule
Deciding to create a budget, and calculating your income and expenses, is only half the battle. One key to making the process pay off is choosing the right budgeting approach for allocating your income.
In simple terms, the 50/30/20 rule helps you divide your income into three pots and allocate it according to the following percentages: 50% goes toward “needs,” such as rent, food and minimum payments on credit cards and other debt; 30% for “wants” such as trips or entertainment; and the remaining 20% toward savings, which can include debt repayment.
Your savings should include an emergency fund that can cover at least three months of expenses should you lose your job or suffer another blow to your income.
6. Budget before the month begins. Don’t wait till the month to start so that you create the budget. Plan before.