2020 was quite the year, with the pandemic and worldwide economy shutdown. If you are Nigerian, you know everything became more expensive:Transport, food, fuel, everything. The naira keeps devaluating and the country’s inflation value keeps increasing, pushing people to finding extra sources of income or invest more.
Both options are great but what’s the point of earning more money or investing when you will still end up with less money due to over spending. To prevent all this, you need to learn how to budget especially with the current world economic situation.
Here are some steps to effective budgeting
- Write down what you earn monthly. When I say what you earn monthly I mean after tax, so if your salary is N500,000 and you are required to pay tax of 45,000, you earn 455,000 monthly. If you don’t have a fixed figure for your income which is the case for freelancers and business owners. You can work with an average of what you earned in the last 3 months. To be on the safe side.
- Track your expenses. Working with monthly expenses will make expenses easier. Fixed expenses like light bill, fuel for your car, rent, and the likes should be written first. The next category of expenses that should be written are expenses that do not occur frequently or vary from time to like groceries, visits to the hair salon, data expenses. Listing out all the expenses will give you an idea of where most of your money goes.
- List out your financial goals. Now you know, how much is coming in and how much is going out, so it is time to write out your financial goals. Having the goals in your head won’t help, you will have to write it down. It is best to be specific with your financial goal. For example, ‘I want to save more’ is not as specific as ‘I want to save 5,000 naira at the end of each month’ . Be specific with your financial goals, whether it is about investing, saving or paying back a loan. Being specific with a goal makes it more achievable.
- Create a feasible plan. Now you have your set goals, you can see your spending, you now need a plan to achieve those financial goals. If one of your goals was pay off some debt, you can look at expenses that don’t occur frequently or are not a must for you and reduce that expense to assist you clear your debt faster. Perhaps you need to save a certain amount each month to reach your yearly saving financial goal. That’s a feasible plan.
- Make changes where necessary. This changes might be in your expenses or to your lifestyle as a whole. For example, cooking at home to reduce the amount you spend on eating food from restaurants. In some cases you might have to reduce your fixed expenses such as rent and move to somewhere that costs less to budget effectively.
- Have a spending limit for everything. If you followed the steps above you know your monthly income and now you have financial goals. Remember in step 2,you tracked your expenses. Based on those expenses you have an idea of how much you spend on a monthly basis and based on those expenses you made financial goals and plans to achieve those goals. Should you overspend you won’t be able to follow the plan and you won’t achieve your financial goals. Whether it is groceries, body care, home essentials,sticking to the spending limit will assist you to reach your financial goals faster.
Initially budgeting might look difficult as you have to do things differently but in the end it is worth it. The most important thing about budgeting is to stick to it.