PERSONAL BUDGET
This year is coming to an end, whether you have New Year
resolutions for the coming year or not, it is an apt time to think and take
action on your personal budget.
A personal budget will let you know how you are spending what
you earn. It will help keep your expenses to the barest minimum so that you can
maximise your savings.
Regular saving of a part of what you earn is what will keep you
secure when you are retired or when you are faced with unexpected expenses. Do
not say “I don’t earn enough to save”; What ever amount you earn you can still
form the habit of saving by minimising expenses.
How do I minimise expenses, I spend money only on necessities?
There are necessities for which the amounts are fixed, there are necessities
for which we pay a discretionary amount and there are non-essentials on
which we also choose to spend.
Examples of fixed necessities include:
- House rent, security
- Utilities like electricity,water
rate
- Car maintenance (service,
insurance)
- Compulsory religious obligation
(Zakat, Tithe)
- School Fees, Day Care
- Taxes
- Subscription to professional
body
- Savings/Investment
Examples of necessities on which we spend discretionary amounts:
- Food
- Clothing
- Handsets
- Call and data credits
- Fuel for car
- Fuel for generator
- Entertainment and Relaxation
- Hobbies
- Gifts and Charity
- Subscriptions to professional
bodies (is membership of this body necessary? What are you benefitting as
a member?)
Examples of Non-essentials on which we choose to spend:
- Designers labels or luxury
brands for necessities
- Eating lunch at restaurants and
fast food outlets (take your lunch to work, it is cheaper and could be
healthier)
- Club memberships that you do
not make use of (e.g. golf club)
- Cable TV (are you paying for
premium subscription while the channels you watch are available on basic
subscription)
- Drinks (alcohol, packaged fruit
juices, soda and the other equally unhealthy lot)
- Tobacco products
To start a personal budget:
1. Determine how much you earn. (If you run your own business, pay all your sales or revenue intact into the bank and withdraw for yourself a salary for each month)
2. List out your expenses into ‘Fixed Necessities’ and ‘Necessities with Discretionary Spend’ as outlined above.
3. At the end of each day, record the amount you spend on each item for the day
4. At the end of the month compare:
1. Determine how much you earn. (If you run your own business, pay all your sales or revenue intact into the bank and withdraw for yourself a salary for each month)
2. List out your expenses into ‘Fixed Necessities’ and ‘Necessities with Discretionary Spend’ as outlined above.
3. At the end of each day, record the amount you spend on each item for the day
4. At the end of the month compare:
- Your total income with total
expenses
- Your estimate for each item
with the actual
At the end of this exercise you will discover:
- If you are living within your
income
- Which items you are spending too much on and from which you can make adjustments to enable you save more.
You can record these using pen and paper or you can use
spreadsheets. You can develop an Excel template or you can download at:
The most important thing about having a personal budget is the
discipline to keep to the budget. Daily recording of expenses helps in
maintaining this discipline.
If you are celebrating the season, Compliments of the
Season.
By Lateefat Oba
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