Budgeting 101: 5 simple ways to budget your way to financial freedom

Budgeting is not difficult if you want to take control of your finances

Getting yourself on the verge of financial freedom requires self-discipline, good planning, and budgeting. Making money seems difficult but spending is the easy part. Many spend a whole month working so hard but once a paycheque comes, it will take them just 3 days to spend all they have worked for. Such a habit, if not monitored and controlled might leave one bankrupt when the means of income are lost.
So, it is always advisable to have a budget put in place as this will enable you to manage your fund and still aid you to put aside funds for future use and emergencies.

WHAT IS A BUDGET?

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A budget is a financial outline designed to measure and guide your income and expenditures for a certain period of time. The period may range from one month to a year.

The whole idea of a budget is to enable you understand and track the amount you are making; how much you are spending and how much you are putting aside for your future.

Some might ask: Why do I want a budget? Having a budget will help you determine your spending plan and in turn, show you where you should limit your spending and what you can afford to spend more money on.

There are many ways you can maintain a budget. They include a spreadsheet, paper and pen. You can also do it through budgeting apps like Mint, Pocket Guard, Wally, Level Money and Unsplurge. These apps can assist you to control your spending habits.

UNDERSTANDING BUDGETING AND HOW TO CREATE ONE

Budgeting encompasses measures put in place to guide your spending. For example, Theresa’s monthly income is ₦150,000 after necessary deductions (tax, insurance and pension). Her expenses include ₦10,000 monthly rent payment, ₦8,000 for Utilities, ₦15,000 for Transportation, ₦30,000 for Groceries, ₦5,000 for Data & Call card, ₦7,000 for Gas & Fuel and 15,000 for Miscellaneous.

The monthly income is ₦150,000 and her monthly expenses sums to ₦90,000. So, Theresa has ₦60,000 left for savings, investment and for emergency funds.

CREATING A BUDGET

Budget planning is not a difficult task if you really want to take control of your finances. It all entails a few key pieces of information. With these elementary apparatuses, you will have a basis for your budget that you can twist as the months go by and as your financial circumstances change.

1. CALCULATE YOUR MONTHLY INCOME AFTER TAXES AND OTHER DEDUCTIONS

One of the benefits of being a salaried employee is knowing exactly what to expect on your pay cheque — month in and month out — and this pay structure will serve as an added bonus when you are building a monthly budget.

As a salary earner, your main pay cheque comes after deduction of tax, health insurance and pension. Once you understand the deductions from your monthly salary, it will aid you to plan your monthly budget.

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This is because some of the key things you might be spending your monthly pay cheque on may have been covered by the organisation you are working for. A good example is your health, which is an unprecedented event that might absorb a large chunk of your budget. But with a health Insurance package, 70 per cent of the expenses will be taken care of. The same goes for your tax and pension.

Having deducted taxes and other expenses that may dock your pay, such as medical benefits and contributions to an employer, sponsored retirement plan every month, it will help you plan and budget more on your fixed and variable expenses. As you are already aware of how much you are working with every month.

2. IDENTIFY FIXED AND VARIABLE EXPENSES

Once you have a clear picture of how much money you are working with each month, you have to ruminate and calculate how much you are spending monthly and how you will be saving.

Building a budget is a good financial decision, but before you get started, there are two main types of expenditures you need to account for as you build your budget.

They are the fixed and variable expenses.

Fixed Expenses are your rent payment, transportation and Mortgage. While your variable expenses are your living expenses and they are Entertainment, Groceries, Gas, Clothing and Utilities.

Determining how much you spend on variable living expenses each month can be fiddly as they are hardly consistent, but it is imperative to get a close estimate so that you can determine whether you can maintain the same spending habits or if you need to cut back in certain areas.

3. SET SAVINGS AND INVESTMENT TARGET

As you saw in the above, Theresa has 60,000 naira left for fixed expenses, which savings and investments are a part of. You can decide to put aside funds because you want to acquire a new land, car or a mortgage at a stipulated time. You can also save to invest into the stock market. This is where the 50/30/20 budgeting strategy comes in. 50 per cent of your income goes to essentials, 30 per cent goes to personal expenses while 20 per cent goes into your savings account. Once you plan and stick to your budget, you will be in awe how you are able to achieve your financial goals. There are some online platforms that will enable you save with good interest rate. You can decide to lock your savings for a year. Some of them include Piggyvest, PayDay by ARM, Sumobank, KoloPay and Alat by WEMA.

4. RECORD YOUR SPENDING

It is important to track your spending. Depending on the budgeting method you choose, budgeting app, pen, and paper, or online budgeting tool, you can pick a way to record your spending that best suits your lifestyle. Making it a habit of recording your expenses will enable you to know when you are overshooting your budget.

Try and analyse your spending habits on a weekly basis. Collect any receipts or statements you have and check to see if you are on budget. Budgeting will help monitor your spending so you are able to keep living within your means. Avoid impulse buying as this will always affect your budget. Only list what you need and rule out what you don’t really need for the month.

5 TRACK YOUR BUDGETING PROGRESS

Creating a basic budget is a huge financial victory. It helps you ensure you can cover your expenses and reach for exciting milestones, like buying a house or acquiring a land. As you continue to budget, make adjustments as you see fit. Your income, expenses or lifestyle might change, and it’s important to ensure your budget keeps working for you and your future.

Set up a budget schedule and make it a point to review your budget on a regular basis—each week, every month, or at least every quarter to see if any major changes, or milestones have taken place. Not only will this help you recognise and celebrate your successes, but it will also encourage you to check and modify your strategy as needed.

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