Budgeting Series 3

……..Continued 

Now that you know why it is important to create a personal or family budget, I would finalise this series by explaining how to create one.

1. Track your spending: The first step to take in the process of budgeting is to track your spending or expenses. Often times, it is the small expenses that often get us into trouble. A simple way to track your spending is to keep a spending diary for a given period. This is as simple as getting a small notebook to record every expenditure. At the end of the tracking period, you would have a snapshot of your daily expenditure.                                                                                                      Scenario 2
   Titi set a target to begin budgeting. As the first step, she decided to track her spending for a month by keeping a spending diary which would enable her to track her monthly expenses. She bought a notepad and began to write down all her expenses on a daily basis for the whole month. Titi soon realized that she was spending a lot of money on ordering breakfast and lunch meals at work. In her quest to eat healthy, Titi refused to eat the food provided by the cafeteria in her office and ordered a smoothie from a nearby restaurant and had lunch at a restaurant every day. Based on her findings, she decided to cut her excesses. She started making smoothies at home every morning and started bringing lunch from home four times a week. She decided to give herself a treat by ordering out every Friday. As a result, Titi was able to save a lot of money which she diverted towards an emergency fund.
2. Determine the budgeting tool to be used: There are various tools that can be used. A simple budget can be written on a sheet of paper with a pencil. There are also various software available such as Microsoft excel or any other money management software.
3. Determine your income: Identify all your sources of income such as salary, dividends, rent, spousal allowances or pocket money, income from business opportunities etc. In your worksheet, create rows for each income source and include a column on the right for the naira figure. With regards to salaries, include your net salary (net of taxes) instead of your gross salary.
4. Expenses: Courtesy of your spending diary, you should know what your monthly expenses consist of. Include rows for each expense in your budget worksheet. A suggested approach is to divide your expenses into fixed and variable expenses. Variable expenses are expenses that change from month to month such as groceries, whilst fixed expenses are expenses that do not change from month to month for example utilities.
5. Sum up: Find the sum of your income and the sum of your expenses. Deduct the total expense from the total income to determine your budget surplus or deficit. If your income is more than your expense, then you have a budget surplus. If your expense is more that your income, then you have a budget deficit. A budget surplus shows you are in the right direction and are spending less than you earn whilst a budget deficit means you will need to cut down on your spending or alternatively, be creative and think of ways to increase your income.

Congratulations, you have created a budget. Remember to always review your budget to ensure you are staying within it. Budgeting takes time but the rewards are worth it. Finally remember to reward yourself and/or your family occasionally for staying within your budget.