A budget is simply an estimate of how much you make, i.e., income, and how much you will be spending over a set period of time. Your period length can be a month or a year, but remember, you have to re-evaluate it regularly. The basic principles of a budget therefore offer a guide on how you can actually make your personal budget a success even if you are broke.
Contrary to those thoughts that when you budget, you deny yourself good things, or that it’s for those who are financially constrained, when done properly, it gives some sense of empowerment.
You have control over your money.
A budget can be personal,can be applied at household levels, at business, and at the government at whichever income level.
Personal budgets vary across individuals.
They are largely influenced by their level of income, personal goals, age, lifestyle and current financial situation.
There are three types of budget which include;
1) Surplus budget
This plan has income exceeding expenditure.it allows an individual to make savings.
2) Balanced budget
There is a draw in income and expenditure i.e. they are equal. You neither save nor borrow.
3) Deficit budget
Here income does not fully cover the expenditure. You are in a situation where you can either withdraw your savings or borrow.
In this article we are going to look at how basic principle can be applied to make your budget a success and how to budget when you get broke.
A budget has to be re-evaluated in order to fit your financial situation.
Come along let’s dive in ………
So Why Should You Budget?
With budgeting you are able to;
- Generate savings
- Control your spending
- Keep on track to achieving your financial goals
- Find contentment in your financial situation
- Reduce stress and anxiety especially with the unpredictable future events
- Avoid and get rid of debts
- Increase your income
Biblical Principles on Budget
Not only does proper planning help us to manage our money but also it prepares us to receive Gods blessings as good stewards to whatever He has entrusted us with.
“Be sure you know the condition of your
give careful attention to your herds,
for riches do not endure for ever
and a crown is not secure for all
When the hay is removed and new growth
and the grass from the hills is gathered
the lambs will provide you with clothing,
and the goats with the price of afield.
You will have plenty of goats’ milk
to feed you and your family
and to nourish your servant girls.
Basic Principles To Apply in A Budget
a) Calculate Your Monthly Income.
Take your net salary and add the automatic deductions of let’s say, NHIF, NSSF, mortgage and insurance so as to get a true picture of what goes into your savings and expenditure.
If you have a business as aside hustle, remove tax and business expenses then sum up to that salary to get the total income.
b) Get Your Mandatory Expenses
It’s calculated by summing up all your needs like house rent, shopping, utilities and transport.
This forms the basis of your budget since they have to be subtracted from your total monthly income.
c) Track What You Spend Your Money On.
The main reason is to pay attention to what your money does.
You can determine what you spend your money most on and identify where it can be adjusted in order to save.
Note that here; even though you are very much aware of your spending habits, you are not doing anything yet to change it.
This will now prompt you to start budgeting.
Some of the many options you can use in tracking your spending include; spreadsheets available online, budgeting and savings apps on your phone or even the traditional notebook where you keep a record of your expenses.
d) Get Your Financial Priorities.
You can make a list by writing down things that make you feel secure in achieving your financial goals.
Have your goals both in short term and long terms.
Short term goals may include having an emergency fund and reducing debts. Long term may include a retirement plan, saving for a child’s college education or even buying stocks for your investment.
Try to be specific as much as possible. If you need land for example, you define the location, purpose, the size and the estimated amount you can pay for it.
When caught between two important goals, it will be prudent to have one that is beneficial to the majority.
For instance saving for your retirement is paramount when you compare to paying college fees if a student can get a loan from HELB (Higher Education Loans Board).
Involve your family in decisions that might be necessary to reduce family spending.
There suggestions may help you come up with a clear view on how to prioritize in regards to your current financial situation.
Note that, as time goes by, there will always be need to review your goals at least annually so as to update them depending on the progress.
e) Make a Spending Plan
The probability of your money making it to where you want it to be largely depends on your plan for spending your money.
You can use these simple steps to create one.
1) Sum up your total income
After tax salary income + after tax income from your side hustle = your total income
2) Get total monthly expenses
Expenses include house rent, food, utilities and any other that you spend your money on monthly.
Sum them up and make sure you have comprehensive view of all your expenses.
Due to fluctuations here and there you may consider overestimating just to be on the safer side of your budget.
3) Decide the amount you can comfortably save monthly.
Whichever amount you choose to save, add it up to your expenses.
4) Find out what is left for spending
Basically what you are left to spend should be a residue of your total expenses and savings from your total income.
5) Review and adjust until it fits your financial situation.
You can choose to have a preview of the plan before you put it into action or you revise it as you go along.
Whichever method as long as it resonates with your situation you are good to go.
“Every day is a new opportunity. You can build on yesterday’s success or put its failures behind and start over again. That the way life is, with a new game every day, and that’s the way basketball is.” Bob Feller Baseball Hall of Famer World War II Navy Veteran
f) Identify Debt Payments
You can use both 50/30/20 and 70/20/10 which are percentage based money management rules to serve the purpose of debt repayment.
Ideally 10% of your income goes into servicing your loans.
g) Manage Your Budget by Reviewing and Adjusting it Regularly.
To avoid overspending, a budget review in a month is therefore recommended basing on your goals and spending.
Since budget dwell on estimates, it becomes difficult to predict the amount of money you will need to do certain things.
You may have a groceries budget but certainly the prices shoot up due to shortage and inflation.
This then automatically calls for adjustment somewhere within the budget so as to stay on your long term financial goal.
How To Stick to Your Budget
- Re-evaluate your budget regularly so as to achieve your long term goals.
- Invest in personal finance and management lessons to educate yourself more.
- View a budget as a gateway to your financial freedom. You can achieve your long term goals without the debts overwhelm.
- Get some support from family and friends so that you don’t feel overwhelmed.
- Pat yourself on the back if you have managed to follow the budget without hurdles.
So How Do You Get To Budget When You Are Broke?
a)Have Your Lowest Income Estimate Planned For.
You can use your lowest paying month as a reference.
Create a budget and make adjustments to ensure that your essentials have been catered for.
Make a list of your essentials in terms of priority and treat them as such.
b) Review Your Spending
You can use public transport to save on fuel cost and use that money on much important issues.
You can as well unsubscribe from channels that don’t give much value to you.
For groceries you can buy what you know will be utilized before getting bad especially the perishable ones if you are used to buying in bulk.
c) Have a Budget Journal
The journal can have a list of both needs and wants to help you make adjustments whenever you get more money.
But from your current status of being broke, already you have been taking care of your needs.
The journal therefore comes in handy when you a purchase that is more of a want and caution yourself on overspending.
With a journal you can easily find a place to fit a saving for emergency.
d) Have an Emergency Fund
It’s important you have one since your income is unpredictable.
Open a savings account that has limited access so that you are not tempted to withdraw any howly.
Most banks in Kenya have this account and still you can benefit from compound interest when you don’t withdraw.
The fund should strictly be used in your rainy days.
Start with the amount you can afford.
e) Prioritize Your Bills
Start with those that are likely to attract interest or penalty if left unattended.
For instance water bills, depending on your Water Company, there is always penalty for late payment either by disconnection or automating a charge of Ksh. 1000 on your water bill.
These will attract extra amount on your bill which could be avoided if paid on time.
f) Talk to Your Creditors.
If you find yourself in the worst financial situation just talk to your creditor and explain your situation.
Your financier will provide a clear view of a range of options and advise you on the best option so that you don’t default.
Remember defaulting will affect your credit score rating negatively which is not good for building your wealth.
g) Avoid Financial Scams.
Do not buy into the true to be good money deals.
Be aware of people who are ready to make a kill from your dire financial situation.
These are just but pits that are ready to swallow you up and make you sink even deeper into a more financial crisis.
When you put in mind that a budget has to cover all your needs, have savings for emergencies and investments, it will only be wise if you choose a budget plan that resonates with your financial situation.