A budget is simply an estimate of income and cost over a period of time. Budgets can be prepared for an individual, a family, a business, a government and Country. So you may ask why should I budget? It makes your financial goals and visions plain. You may be saving for a New car, School fees, Medical cover, Food etc the list is endless. A Budget is a vital tool to help you get there. Below are some useful tips for budgeting.
1] Set out your financial goals for the year. For example I want to save (10-30%) of my income every month or I want to clear my overdraft in the next 3 months.
2] Make it Plain – so what do I mean by this? Get a pen and some paper, or open a word document or an Excel spread sheet and list all your monthly potential of income (salary, rent, cash back, bank interest, tax refund, tax credits, bonus (reasonable estimate). Spoiler Alert! My UK peeps, please note that your interest free overdraft is not a type of income lol, I know the feeling but I can assure you, if you budget and stick to your plan, in short time you can be financially free and savvy. Check out Mint for more on this.
Then list all your monthly expenses, Rent, mortgage, transportation, food, utility and telecoms bill, food shopping, clothes shopping, school fees, social cost i.e. eating out, Christmas, Savings and investments( technically these are not expenses ,however we can treat them as expenses for the purpose of a personal or individual budget). My next article will be budgeting for business so stay tuned. It may be a good time to get your bank statement out (say the last 3 months) and a highlighter pen so you don’t miss out any important expenses.
3] Now Tally up -There are several budget templates online like this comprehensive but easy to use one from Vertex42. I am expecting three main results from this exercise.
I) Your Income exceeds your expenses (including savings and investments).
Fantastic, well done but except you are a business set out to make profits for shareholders I will say, invest more- let that money generate further income for you. If you are looking for passive way to invest, there is a new trend of ‘Robo Advisors’ that make investing effortless. They offer an automated investing service that help people manage and grow their wealth through smarter technology for a fraction of the cost of traditional financial services. Although this trend is very popular in the US, there are some companies offering similar services across Europe.
Nutmeg – UK
Wealth Horizon – UK
MoneyFarm – Italy/UK
Vaamo – Germany
OwlHub – Germany
Moneyvane.com – Switzerland
SmartRand – South Africa
Robo Advisors are yet to be formally established in West African Countries, however there are many traditional investing/ brokerage companies including ARM, Zenith Securities, Investment one to name a few.
II) Your Income just about covers your expenses.
Great and well done, keep reading for tips to squeeze out more money so you can achieve those financial goals you set out earlier.
III) Your expenses are greater than your income.
Not to worry, remember it’s a new year, so muster up the strength and courage to overcome this shortfall.
4] So below are some tips, I have put together
In my last role as a Finance Business Partner, one the major aspect I loved about my role was working with business managers in delivering their budget, which is meeting the goals and expectations that had been set for the year. This involves scrutinising every aspect of your budget and asking one question ‘what can we do different here’. So let’s give it a go with our personal budgets.
- Am I due for a promotion (internally or externally)? Can you negotiate an increase in my salary due to my outstanding performance?
- Can I get a better paying job? (Please secure a new job, before you quit your current job- I can’t shout!)
- Can I increase my working hours?
- Can I get a second job (for a short while to cover my expenses (loans, overdraft, and credit card)?
- Can I turn that hobby into a part time business?
- Can I turn that part time business into a full time business (tried and tested)?
- Can I rent out the spare room?
Expenses – Believe it or not, this is where you can make the biggest change to your budget. So let’s go through the same exercise
- Rent, now except you are coming to the end of your tenancy agreement or in the process of downsizing or relocating, there might not be much room here for saving. With your mortgage you may be able to switch providers with a favourable rate. A 1% savings on your mortgage rate can make all the difference. Check out moneysupermaket if you are in the UK for comparisons.
- Utility bills. You may be able to save some money here as well by switching suppliers. You will also save some money by cutting waste by switching to energy saving bulbs and turning of appliances after use.
- Travel to work? Is public transport cheaper and faster? Ditch your car, Can you car share (pay for half petrol cost), Can you switch transport mode i.e. swap tube for bus or walk (if you live less than two stops away), Can you work from home?
- Eating Out. If you eat out a lot then this will be an easy one for you to save money on. Can you cut your eating and drinking out by 50%, If you spend say £20 a week on take outs, you can save at least £10 a week on eating in, that’s an average of £40 a month and £520 per annum. You will also save money and effort by taking your left over’s for lunch or meal prepping (prepping your lunch over the weekend for the week ahead.
- Shopping (clothes, books, cds, makeup, perfume, shoes, kids clothes, pound store knick knacks, pet toys, Gadgets, mobile phones, electronics, designers wears, etc ) You get the message, remember you are trying to create wealth so that you can have things comfortably next year. Please don’t get me wrong the above are essentials for modern living but don’t have to be replaced every year or purchased in excess.
- Holidays – I know a few people that travel out of the country at least 3 times a year. This is great if you fall in A or B, but if you are trying to create wealth, you will need to cut this down and explore other ways of relaxation or getting away.
Now that you have found ways of saving money and creating wealth you can readjust your initial budget for the obvious savings. Once done stick to your budget, the only thing you are allowed to do is out perform your budget. Please note a budget in concept is static for the period intended so make sure it is S.M.A.R.T. Specific, Measurable, Achievable, Realistic and Timely.
Bonus tip, one of my work colleagues and now good friend taught me this a few years ago when I was struggling with the overdraft. This is what she does and I did it as well and it worked. I used to be one of those people who never carry cash; I always had my debit/atm card on me and pay for 99% of my purchases that way. I used to wonder why she always had cash in her purse, we go out for lunch she pays cash all the time. She told me ‘Oyinda’ once I get paid I take out all the money I need for the month in cash and ditch my debit/atm card till the next month’. So what she taught me to do was once I had my budget for the month, get envelopes and label them individually for each expense , I had an envelope for lunch, petrol, shopping, gifts, bills etc I think I had over 10 envelopes each month. I only put money I have planned to spend that day or week not more than a week in my purse. What you find is that you are in control of your spending and you manage your cash more effectively. The result was I didn’t over spend each month and I always had some spare cash to spend at the end of each month.
There are loads of apps available to assist your personal budget. Nurture what you have to grow what you want.
So give it a go! If you have any more tips or contributions please comment below.
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Many thanks xx