Budgeting is the process of planning how you spend your money. It is merely a comparison of how much you bring in and your expected expenses monthly or quarterly or yearly. A budget is important because it helps you determine your spending plan and in turn, shows you where you should limit your spending and what you can afford to spend more money on. There are three ways you can budget:
- Zero-Based Budgeting
This is where you have to write down and budget where every shilling goes ahead of time. This method is good for people who feel like they are not in control of their money. The following are simple steps for creating a zero-based budget
- Write all fixed expenses and their cost
- Write all expenses that vary and their costs
- Add fixed and variable expenses and deduct them from your monthly income
- The remaining amount is divided between savings, financial goals, and entertainment or whatever you may need
2.50/30/20 Rule
This rule had its origin in the book All Your Worth by Elizabeth Warrant. The 50-30-20 rule is a straightforward template that helps you in budgeting for your finances.
50% of your income-Needs
These are the bills you must pay and things necessary for survival. They include the following:
- Food
- Transport
- Rent or mortgage
- Electricity
- Water
30% -Wants
These are expenses that will advance your lifestyle/non-essential expenses. You can live without them though. They include:
- A new phone
- Television
- New home décor
- Eating out
- Entertainment subscriptions
- New clothes
20% -Savings
The remaining 20% can be used for savings or to pay off debts if you have any. It depends on your ultimate goal. Whether it is to buy a house, education, or anything that you may be aiming for.
3. pay yourself first method of budgeting
Last but not least is the pay yourself reverse budgeting strategy where you take care of the necessities first including savings and then spend the rest of the money on wants, stress-free.
The following are the steps to pay yourself first;
- Note or calculate your monthly income
- Add the money you spend on needs and that for your financial goals
- Deduct the sum above from your monthly income
- Enjoy the leftover money stress-free
The Bottom-line
Budgeting can be hectic but once you figure out which method works for you, then you are good to go in achieving your financial goals. Do not wait to start, start now. Have you budgeted for a house? It is not too late. The dream homeownership can be achieved easily if you know how to manage your finances. For more advice and information contact Mintvilla Housing +(254) 711 08 29 29 or email us at [email protected]
