How to budget

6 February 2021
Black family in their kitchen talking and preparing a family meal together

Learn more about budgeting to enjoy greater peace of mind and focus in your life. Here we share some tips on budgeting and what you can do to get started today.

How To Make A Budget

  1. Keep track of your income and expenses
  • The first step is to keep careful records of the money coming into your household (income from all sources) and the money going out (expenses).
  • You can then use this information to create a cash-flow statement that shows where your money comes from and where it goes during a specified period of time.
  • Analyzing your cash-flow can help you figure out whether your expenses are greater than your income.
  • A cash-flow statement will help you identify where you can cut back on spending and ways you can save more.
  1. Create budget categories that are appropriate for you
  • Once you have estimated your monthly net income, the next step is to think about appropriate categories for your budget.
  • The two most basic budget categories are spending and saving.
  1. Set your financial goals.
  • Goals can vary from meeting basic needs, getting out of debt, educating children, to buying a house etc.
  • Once you decide on your priority goals, figure out the cost of each and set a time frame for achieving it.
  • Estimate how much you must allocate to savings every month to achieve each goal.
  • If this amount is more than you think you can afford, make adjustments by extending the time you need to save the desired amount, reducing the cost, or changing the goal.
  1. Allocate your income across your budget categories.
  • If your cash-flow statement provides a good and detailed estimate of your current income and expenditures, you should be able to identify opportunities to reduce spending and save more.
  • When you allocate money across budget categories, consider your priorities and financial goals.
  • If you don’t have enough income to pay for daily necessities, repay debt and save for specific goals you know that you will need to make adjustments in the budget.

How Do You Stay Within The Budget?

Making a budget is a simple task. Anyone can do it. But following a budget, and sticking to it, can be much harder.  The following guidelines will help you find the discipline you need for each aspect of your budget.

  1. Setting financial goals
  • Set specific short and long term goals for your money.
  • Set up at least one goal that you can react quickly to reward yourself for saving.
  • Review your financial goals and budgets over time.
  • Think of what you want in life and set goals towards achieving that.
  • After setting your financial goals, plan where you will get the money from. If you can’t get enough money from your income, raise additional money through home-based projects like vegetable growing and marketing, bricklaying, roasting and selling of groundnuts, baking, and others.
  1. Spending
  • Reduce what “goes out” as a key form of saving. Wise spending helps you save.
  • Make a list of all the possible ways to spend less on daily expenses. You can save more over time by cutting back on regular day-to-day expenses than by cutting back on one big-ticket item.
  • Plan to meet your basic needs before thinking of luxuries.
  • Keep track of how much you spend on everything.
  1. Saving
  • Save first! Follow the 10 per cent solution—save 10 per cent of what you earn. One strategy is to save first and then think about how to spend what’s leftover.
  • Save 3–6 months of operating expenses in an emergency fund before you allocate saving for other purposes. This will protect you in case of family illness or unemployment and reduce your reliance on short-term debt to meet emergency needs.
  • Keep savings out of reach. If you keep your savings at home, you are likely to feel pressure from your family members to spend that money.
  1. Investing
  • Save and invest so that you will still have something to live on in case of a sudden loss of employment, accident or illness.
  • Figure out your tolerance for risk. Remember other occasions in your life that involved taking risks. How did you handle those? How did they make you feel?
  • Gambling is a reckless business investment. Gambling can take the form of betting on sports, games, playing cards and more sophisticated games like in casinos or online. Gambling has left many people financially strained with destroyed relationships and friendships and an unmanageable amount of debt. Avoid these activities as you grow your savings portfolio.

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