10 hacks you need to know about Budgeting
Updated: Sep 11
I am beginning to believe the one hack to life is to treat yourself as a business. That is having a mission and vision, goals to be accomplished, a budget and acquiring skills that will give you an upper hand among others. Budgeting is an important skill for everyone, not just if you are good in math or a finance major. It is the path to financial freedom and independent living. The purpose of budgeting is getting your money to work for you instead of working for your money. Over the years, I have greatly improved my spending habits and though I cannot call myself a guru yet, I have some few tips for you if you are striving to be better with your finances;
Budgeting will allow you to allocate money for various things in your life and will ensure you always have money for your needs and priorities. It also gives you control of your money and what it does. Having no spending plan will ensure anything goes, and that's how you find yourself unable to account for a single penny of last month's money that only came in a week ago. Additionally, budgeting helps you set aside money for emergencies to provide a cushion for when you need one(Covid-19?). It also helps you track and monitor your financial goals which are the backbone of your goals. Remember wealth is not forever, you can easily lose it all without proper management.
Get your head in the game
When you embark on your budgeting journey, you may realise you spend more than you probably should. This might make you feel depressed about how you spent your previous finances, but the important thing is that you have realised there needs to be a change in the way you handle your money and you have decided to take action. Follow money experts, watch budgeting videos on youtube and read helpful books such as All your worth by Elizabeth Warren and Smart Money Woman by Arese Ugwu for an African perspective.
Audit your expenses
You need to dive deep into your expenses. Chances are that you are putting your money where it does not return anything or where it produces short-lived joy you can live without. A good place to start is by listing what you did with your money today, yesterday or even this week depending on how far you can remember.
Set financial goals
After auditing your expenses, you will need to define your financial goals. Everyone wants to be rich, but what does rich mean to you? A million clothes? A brand new sports car? A house in a decent neighbourhood? or life savings? All these require money! Financial goals are very important since they are the rock of the rest of the goals and thus it is important to be as specific as possible when setting financial goals. This entails not just setting how you will spend money, but also how you will increase your disposable income and investments. See how to set smarter goals.
Use the 50 30 20 rule
There are many money rules out there, but this is what I find what works for me. The rule was invented by Elizabeth Warren and it simply requires you to break down your income into 3 parts; 50% of it into needs, 30% into wants and 20% into savings. Sounds easy right? Wrong! Unless you have a clear definition of what your needs and wants are, it is easy to get the two confused. It is also important to have a diversified savings strategy that is, not locking all your money on Mshwari locked account or a long term scheme. This rule is just the tip of the iceberg.
Spend like you are broke
I have been guilty of splurging my money when payday arrives only to be left in premium tears and a sorry bank account a week or two later. The trick to avoiding this situation is to spend your money like you are broke because let us be honest, you kind of are. You will not always win with this one, but keep reminding yourself until it sticks.
Plan for sinking funds
A sinking fund is a mini savings account that is set up to deal with upcoming expenses. Is there an upcoming event you need to attend? or perhaps you need braces or to fix your car? This account caters for all of that. You could take a percentage of your monthly savings to build the funds and get ready for the expense or you could allocate a specific percentage for it from your monthly income.
Tools and apps
Apart from the 50 30 20 rule, there are other tools and apps that can assist you in budgeting your money. Spreadsheets like Microsoft Excel are very useful in budgeting since you can create a sheet to take into account all your expenditure and get graphical representation from the data you key in. To track my daily expenditure, I personally use Money Manager, available only on android but there are similar apps available on ios.
Review your budget regularly
You may think you are doing great and you are on track only to find yourself short of money that should have been somewhere else. Just like your goals and plans, you should frequently review them to know how good you are doing and to even create better systems that will cater more to your needs.
Be kind to yourself
Budgeting is a road less travelled and as such, you might find yourself alone or discouraged when you fall off track. It is important to be kind to yourself and reach out to like-minded people in your circle, and if none exists, maybe it is time to do a friend audit. There are influencers such as Patricia Bright who runs The Break Platform where I get so much inspiration. There's also Centonomy here in Kenya which offers classes and a bunch of educative videos on youtube as well.
There is more that goes into money management and budgeting, these tips will get you started but you will have to do more research and learn more on your own to really get good at it. Maintaining a good relationship with money is essential but you do not need to be frugal.
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