We all do it. Somewhere in the middle of the month, we begin counting the days to the 1st, or somewhere about. Not because anything exciting is happening, but with the 1st comes pay day! The day when our debts become a little less, and the nights become a little warmer.
Why, though? The answer is simple because we don’t know how to budget. This results in a familiar situation where we have too much month at the end of our money. Some people choose to fight these days out and live on noodles or ugali and mala for the rest of the month while those with less pride borrow from friends and relatives who understand just how real the struggle can be.
However, like most things in life it all comes down to – choice and planning. The anecdote that our teachers used to give us while we were preparing for exams was “failing to plan is planning to fail,” and this could not be truer in this context; only this time failing to plan is planning to be broke.
Creating a budget, especially your first one can be extremely overwhelming. But take it from us, it is definitely worth the effort. Once you develop a budget that you can maintain in the long run an increase in wealth and a decrease in debt will surely follow. So how does one go about it exactly?
Consolidate your accounts
If you have savings, checking accounts, side hustles, Chama’s or any other financial instruments, you will want to know how much money is in each account as well as the interest rates and expenses of each one. Make note of this information as it will become important in determining your net worth and the best use of your capital in the future.
Consolidate your income
Arguably the most important step is to know how much you are making, otherwise, you won’t know how much you have to spend or save. Don’t know how much you have and then let this figure sit pretty in your mind, write it down – it forms the building blocks of your budget. We must warn you, this can be a bit sad at the beginning – seeing how little you are making in comparison to how much you were (past tense because you are turning over a new leaf, and leaving these bad habits behind) spending – but do not let it discourage you, we all have to start from somewhere.
Consolidate your debt
Determining your monthly recurring debt payments should be your next step. This should be fairly simple to do, as long as you have stopped incurring additional debt in the short term. If you haven’t been able to break your dependence on credit, this is okay, as building a budget will act as the first step for your next financial priority which should be getting out of debt.
To find out what your monthly recurring debt payments are, calculate the total amount owed on each debt account as well as the minimum monthly payment. This includes car loans, mortgages, personal loans etc.
This will provide you with the first few line items in your budget, and will allow you to determine your net worth.
Determine your net worth
Now for the really hard part. Once you know how much money you have and how much you owe, you can easily determine your net worth. Just subtract what you owe from what you have, and you will derive a number. This number will tell you the value of your financial resources. Basically, how much money you actually have to your name. For many, this number can be an eye opener, especially when it is negative. But you’ve made it this far and you should not be discouraged now, plus by making it this far in this article you are already on the way to changing this number.
Calculate your expenses
Before it gets better, it has to get a little worse. Your expenses are things such as utility bills, petrol if you are on that driving tip, food etc. Try and put these expenses into three general categories that work well for you and then work up an average figure for each category. Again, but this down on paper to further document the process.
The dreaded bottom line
In the banking world, we like to refer to a specific number as the bottom line. In layman’s terms, this is the number that we are overspending or underspending. This is the point where the decision to stop living pay check to pay check really comes into play. Are you ready? All you have to do is adjust all of your spendings and saving to mirror this number. If you are spending more than you have then cut down, and ensure you contribute 10% to your savings. Moving money into savings and treating it like a recurring expense will allow you to slowly build up your savings without feeling like you must make these deposits from what is left at the end of the month.
Finally, be disciplined! There is no point in going through everything we have gone through if come “when salo checks in” you splurge on something you really didn’t need. Like the way you arrange for your car to be washed or to go and get your hair down sit down once a week and track your budget. You can easily do this with our prepaid cards available here: https://www.dtbk.dtbafrica.com/for-you/bank/accounts/savings-accounts The discipline and associated knowledge that you are making good long term and short term decisions will make you a happier person knowing that you won’t have to live pay check to pay check anymore.
Coming to you from the town of financially empowered individuals,