Are you tired of being broke at the middle of the month because you spent your whole pay cheque within the first two weeks of getting your salary? Are you wondering how you can stop making unnecessary expenses that dent your pocket? If so, then you will need a budget to help contain your spending.
It might seem like a daunting task to sit down and write up a budget but the advantages of maintaining a budget far outweigh the effort required. Here are five steps to writing a budget that will help you track and control your expenditure:
What is your goal?
It is important determine at the outset what you want to achieve from budgeting – do you want to spend less? If so, do you want to put the extra money saved from budgeting into savings or what? Do you want to slowly get rid of debt? Or do you just want to gain an understanding of how you are using your money? These questions will help determine what kind of budget you will need.
Set a time period
Determine what time period you need to set your budget for in order to attain your goal. Will you need a month-to-month budget to attain your goal or would a yearly budget enable you to attain it?
Add up your income
Put down all you earn from all sources including your salary, passive income and any other source of income. As some sources of income may be irregular, you will want to get the average income per month these sources of income generate, so that you can know just how much total monthly income you get on average.
Document your expenses
It is important to document just about every expense you are incurring so that you can know where to make adjustments. You could do this the old-fashioned way by having a note book and pen, and writing your expenses down as you incur them. Or you could download one of the many apps available on smartphones to ease the process.
Categorise your expenses
There are expenses that you have to incur whether you like it or not (“a must” expenses) – water, electricity, food and the like. Then there are some that are more or less optional – for example eating out at a restaurant every weekend, having weekly manicures and so on.
Make your budget and make adjustments
It is now time to make the actual budget. A spreadsheet such as Microsoft Excel will be good for this. You will put all the expenses you have been recording in your note book or app onto your spreadsheet, and then start looking at what you can cut down on depending on what you had set out as your goal when budgeting.
If you had said your intention was to cut down on spending by Sh3,000 and put that money into savings, you could look at the optional expenses you have been incurring, for example manicures, and you could decide to cut down on the number of manicures you have a month, or you could also look at the “must” expenses. Even though you cannot completely cut off your electricity expense, maybe you could reduce your consumption and consequently reduce the amount you spend on it.
Tip: It has been said that simplicity is the ultimate form of sophistication. Therefore, you do not have to make an overly complicated spreadsheet. Just list your expenses, your income, compute the difference and see what expenses you need to cut to ensure you achieve your goal.
Next week we will be looking at how to reduce the costs incurred from unavoidable expenses such as electricity and water.
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