In the current state of the economy, it may be difficult to sustain yourself if you do not plan well. Often, you will find that you do not have enough money to do or buy everything you want and need. This is where a budget comes in.
“What is a budget?” you may ask. It is a written plan that outlines how you intend to spend your money. It is perhaps the most vital method you will ever need in your economic arsenal.
Creating a budget may seem like a daunting task, but it is worth the effort. However budgeting comes with a lot of benefits, from putting you in charge of your finances to securing your future. To top it off, there are free budgeting apps you can use.
What Is Budgeting?
By defination budgeting is a technique of creating a well-laid-out plan, aka a budget, on how to spend your money. With budgeting, you hold the power to create your own goals, fund them, and track all your spending. This ensures that you will always be progressive with your goals
The budgeting processes
Creating a budget from scratch should not be overwhelming or stressful. Here is a simple budgeting process that will help you create an easy-to-use budget that will work for you.
1. Calculate your monthly income.
Here, you have to consider all avenues that give you money, whether it’s your job, your side hustle, or even child support. Sum up the amount minus taxes. This will give you an accurate estimate of your total income.
If the amount varies monthly, try to come up with an average and use that instead.
2. Make a list of all your expenses.
Categorize them into wants, needs, and investments. Here, include fixed expenses such as rent, insurance, personal loans etc. Then list expenses that vary from time to time, such as food, entertainment, transportation, fuel, etc.
Remember to check your bank statements, receipts, or even credit cards to ensure you don’t forget any expenses.
3. Set goals
Set a list of goals that you would like to achieve. They can be long-term, such as buying a house, or short-term, like renovating your kitchen. Ensure that your goals are realistic; we don’t want you to get into debt.
4. Design a budget
Once you’ve considered all those factors, create a budget that suits your financial goals.
Ensure that your expenses don’t exceed your income. Create a balanced budget that accommodates everything that you need to pay for. You can use a budgeting template to make your work easier.
The easiest way to do this is to use a budgeting app such as Buxfer.com, Mint, Pesa droid, etc.
5. Put your budget into action.
Ensure that your spending follows your budget. Ask yourself the vital questions: Have I allocated all my wants, needs, debts, unexpected expenses, and all the fun stuff? With this, you are assured that you do not have to rely on debt to live a comfortable life.
6. Track your progress
Creating a well-working budget can take at least two months. Do not be hard on yourself; after all, you have lived without a plan; give it time.
Every month, you should look at your budget and reassess your goals. If you have achieved some goals, set new ones or redirect the money to your long-term projects.
Budgeting: 50-30-20 rule
The recommended method of budgeting is the 50-30-20 rule. It is divided into three parts:
The essentials, aka the must-haves
These are the needs that are necessary for your survival, such as utilities, rent, food, transportation, and health insurance. They should take up 50 % of your income.
These are the things you spend your money on but are not necessarily essential. They include vacations, that new shoe you’re eyeing, the latest phone, takeout, a Netflix subscription, etc.
They are those little things you spend your money on to make life more entertaining and enjoyable.
They should take up about 30% of your income.
Savings and investments
This money goes into your savings, emergency funds, investments, etc.
This takes 20% of your income.
Use our 50/30/20 budgeting rule calculator to see how this applies to your income.
10 reasons why you need a personal budget
1. It will help you achieve your goals.
If you throw your money at every shiny object you come across, how will you save enough to get your dream house? A budget will force you to outline your goals, note the progress you make, and save money until eventually, you’re sitting in your lounge basking in your achievements.
2. Protects you from bad debts.
Due to the rise of lending services like Mshwari, KCB loans, fuliza, etc., more people are going into debt daily.
However, if you formulate and stick to your budget, you will never be in such a position. All you have to do is know what your income is, how much you need to spend each month, and what you need to set aside for saving.
3. Stops you from overspending
Creating a budget will push you to have a microscopic view of your spending. You might be shocked at how much money you spend on takeout. Do you honestly need 20 pairs of white shoes?
Budgeting enables you to evaluate your money-spending habits and focus on achieving your goals.
4. It will make it easier for you to save.
A budget will show you the ratio of your income to your expenses. This will help you plan your budget and see where you can cut costs to maximize your savings.
You will be surprised at how much money you don’t need to spend once you have a laid-out budget.
5. Allows for some leisure time
Think of that trip to Malindi that you’re always thinking about but can’t afford. It would be awesome if you could go, right? What if I told you that you could make it possible?
Budgeting helps you redirect money that you spend on non-essential things to things that you want. Do you need to have KFC every day? You could redirect that money and be on your way to the beach in no time if you reduce your reliance on takeout and impulse purchases.
Budgeting doesn’t mean limiting the pleasures of life.
6. It will keep you in control of your finances.
Do you ever feel like bills are piling up so fast that it overwhelms you? Do you make a lot of money but have nothing to show for it?
Well, the good news is that you can control your finances instead of letting them control you. By creating a budget, you get to dictate where your money goes and for what purpose. This way, you never have to feel overwhelmed again.
7. It prepares you for an emergency.
Because life is full of surprises, it is important to be prepared.
When you unexpectedly lose your job, fall ill, or there’s a death in your family, this will cause a financial disaster if you are not prepared. This is why you need an emergency fund.
You should contribute to your emergency fund, which should essentially include living expenses of at least 3 to 6 months’ worth.
8. Prepares you for retirement
Everyone will eventually retire and therefore need a retirement budget. Your paychecks will eventually stop, and you will have to rely on investments, savings, or pensions.
If you decide to set aside a percentage of your monthly income for retirement, you will eventually have a good nest egg.
Although this requires you to make sacrifices, trust me, it is all worth it. After all, isn’t it better to spend your retirement taking trips and relaxing instead of working at your local grocery to try to put food on the table?
9. Shows where your money is being spent.
Have you been in a situation where you look at your bank balance and wonder, “Where did that money go?”
With a budget, you don’t have to worry about that. It shows a clear picture of where your money is going and how much is going to each expense.
10. It improves the quality of your life.
A budget will give you peace as you won’t have to worry about what life throws at you. You will know where you stand with your goals; therefore, you’ll spend less time worrying about paying for things.
5 budgeting apps for Kenyans
There are a lot of budgeting apps in Kenya, but we will focus on the top five.
Buxfer is a budgeting app that reminds you of upcoming bills, tracks your expenses, and shows you your budgeting patterns. It combines all your apps and automatically syncs your financial information.
It provides a budgeting Excel template that comes in handy.
Mint is also a great budgeting app. Once you input your personal financial information, it can create a budget for you. Awesome, right? Topping it all off, it provides financial advice, what more could one ask for?
3. Pesa Droid
Pesa droid is an app from Safaricom that records and notifies you of all your transactions. It records both incoming and outgoing. This generates a cash flow statement that allows you to track your income and expenses.
It is compatible with your Mpesa, so there’s no need to worry about it missing any transactions.
On the plus side, it is a free app. It is available on Google Play.
4. Money manager
The money manager is a great app. It has features such as recording all of your transactions, tracking spending, managing your assets, and daily reviews of your finances.
It comes with a budgeting format that is easy to use.
To top it all off, it’s free!
This app is good for setting goals and keeping track of them.
It shows a visual representation of your progress. This will motivate you to keep working towards your goal.
There are a few aspects you should consider when budgeting. First, ensure that your expenses do not exceed your income; this can be disastrous. Secondly, ensure that you create a realistic budget that will work for you. With the availability of budgeting apps like Unsplurge, Money Manager, etc., it has been made easier.
Finally, remember to reward yourself, after all, budgeting is meant to improve the quality of your life over the long term.
- Retirement Planning for Self-Employed Individuals
- How to Get the Best Personal Loan Offers from Different Lenders
- What is Peer-to-Peer Lending?
- Personal Loan vs. Credit Card: Which is Better for Small Expenses?
- The Complete Guide to Merchant Cash Advance(MCA) Requirements