Operations & Finance
April 16, 2024
5 mins
Introduction: Taking control of your finance is an active journey and it requires focus, dedication and control. Budgeting is an aspect of personal finance that would help you gain control as it enables you know where your money goes each month. Creating and sticking to your budget helps you remain accountable and keeps you in control of your finances. We share a few steps below to help you:
Understand and calculate your net income
The first step is to calculate your net income. This is the foundation of budgeting as every budget is based on your net income. Your net income is the amount spendable after statutory deductions. If you are an entrepreneur, you need to calculate your profit income and restrict your personal budget to it so you do not spend your business capital. As a freelancer or gig worker, your income could be unstable so it is necessary to always take note and work with your monthly realities.
Know your expenses
After calculating your net income, calculate your monthly expenses. It is important that you are as specific as possible and you include everything you spend your money on. When this is done, categorize your expenses into two broad categories: needs and wants. This would help you prioritize when modeling your budget. Once again, do not leave any thing out of your expenses calculation no matter how little it might seem.
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Follow a budgeting model
You should consider following a budgeting model or principle such as the 50-30-20 or 60-20-20 model. The first model states that 50% of your income should be budgeted towards your needs. Now, your needs are your essentials; they are the bills that you absolutely must pay and are necessary for your survival. Your needs include things such as rent, transportation, feeding, debt repayment, utility bills, etc.
30% of your income should be allocated to your wants. Your wants are things that are important to you but you can live without; for example vacations, luxury shopping, fine dining, entertainment, streaming subscription etc. Finally, 20% goes towards your savings and investments. The 60-20-20 follows a similar division: 60% budgeted towards your needs, 20% towards your wants and 20% towards your saving and investments. There are a few other models but the trick is to understand what works best for you and stick with it.
Use a budgeting tool
Rather than write your budget on a piece of paper every month, we encourage you to use a budgeting tool to help you improve and keep proper track of your spending. Using a budgeting tool would also help you evaluate your budgeting progress over a period of time. We have a budgeting feature that will be released in the next version of the myStash app. We’ve got you covered.
Set Achievable and Realistic Goals
Your budget should reflect your short and long term financial goals. For instance, you desire to build a strong emergency plan. You could consider channeling the entire amount budgeted for your savings and investments to your emergency fund for a few months to enable you achieve your goal faster. Also, to ensure that you don’t loose your confidence, ensure that your budgeting goals are realistic. For instance, budgeting for a one week vacation which would cost in excess of 5 million Naira when you earn about 100,000 Naira per month is not a realistic goal.
Conclusion: The need to have a budget cannot be overstated. Beyond being a good financial habit, budgeting would help you limit waste and avoid unnecessary expenses. It would also help you plan better for projects and get clarity on your financial plan.
Happy stashing…
