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The jury is still out on deciding if the Federal Government would be able to keep the economy afloat this year as oil prices continue to slide. However, instead of watching the government hawkishly, you might want to consider taking charge of your finances by planning and keeping a budget for your finances.
Simply put, a budget is a tool that helps you to make strategic plans for meeting your financial obligations in order to control resources and to attain financial independence. This piece seeks to explore why everyone needs budget and to give you simple steps that will help you make budgetary plans.
Money Is Slow to Enter but Quick to Go
The main reason everybody needs a budget in order to stay financially buoyant is that money comes in through finite streams but the avenues for spending money are infinite. Your income will most likely come through a salary, extras from side jobs and profit from investment activities. However, money goes out on food, shelter, clothing, transport, family and societal responsibilities among many others.
In addition, for most people, the rate at which money comes into their bank accounts is slower than the rate at which money flows out of the account. Most people would need to work for a whole month before they are paid their salaries; yet, the entirety of the salary can be spent in a day.
Hence, you need to consider making a budget if you want to avoid the vicious cycle of living from paycheck to paycheck, or worst-still incurring debts before the next paycheck arrives.
Three-Point Step to Making and Keeping a Budget
Assign Every Naira to a Duty Post
Have you ever collected your salary for the last month only to discover that you can't specifically say where much of the money went by the middle of the current month? The key to ensuring that you know where each Naira is going at any point in time is to assign it to a duty post before it gets to your hand.
As we await the payment of January salaries next week, you should start by writing out your major expenses for the next month. Writing out the expenses is not enough; you should be decisive and send the money to meet those expenses as soon as you get a debit alert for your salary. If you leave money lying down in your account instead of disbursing it ASAP to meet needs, you'll be surprised that you'll eventually spend that money and you wouldn’t have met the original need.
Keep Some Mad Money Aside
One of the pitfalls that will make you fall short of your budgeting goals is to forget about less-frequent and unexpected expenses. Truth be told, you will have a number of unexpected expenses such as car repairs, changing light fixtures and that new school sandal for junior. In addition, your expenses are not likely to occur evenly throughout the year since you are not likely to have the exact type of expenses every month.
Hence, when making your budget, you should keep some money aside for the sake of meeting unexpected expenses. The key is to allocate about 10 to 20% of your regular monthly expenses for unexpected expenses and you'll be better prepared to meet them when they surface.
Live on Last Month's Income
This might sound overly simplistic and commonsensical; yet, it is one of the hardest pieces of personal finance advice to follow. Living on last month's budget creates a buffer between when you receive your income and when you need to pay the bills such that you don't need to incur debts to finance your life.
To live on last month's income, you first need to save up enough money to cover your regular monthly expenses. Depending on your income level and financial obligations, you might need to set some money aside for a number of months before you have enough funds to cover one month's worth of expenses.
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