Budgeting Basics
Are you tired of living paycheck to paycheck? Do you wonder how your money just seems to disappear in a matter of days? Well, you’re not alone. Budgeting is an important life-skill that doesn’t get enough attention in the limelight. Join me as we dive into the basics of budgeting and how you can regain control of your hard-earned money.
But first - why even listen to me?
My father was a senior lecturer in accounting, completed CPA in both Tanzania and Australia and used to run a master’s program in Business Administration.
My mother holds a bachelor’s degree in accounting and has worked many years as an accountant.
My older brother is a senior internal auditor.
I hold none of these credentials but between dinner table conversations of discussing equities and Cramer’s rule, I like to think that I picked up a few things. That and me being a productivity nerd, I’m always looking for more ways to maximize my potential.
With all that out of the way, let’s dive in!
What is budgeting?
Budgeting is the balance between spending appropriately and saving money. Here are three ideas I found to help you with your budgeting.
1. Use an expense tracker
In order to see where your money is going, the most fundamental step is to track your expenses with an expense tracker. For most people, recording their expenses is a boring and tedious exercise. However, it is crucial in order to control your money.
Ideally, I would recommend you track your expenses over a two-week period to give you an idea of how you spend your money. Personally, I’ve been using Deborah Ho’s Expense Tracker since around August 2020 when my girlfriend recommended it to me after seeing her viral TikTok video and thought that a productivity nerd like me would get a kick out of it (she was right!). It’s free and compatible with both Android and Apple devices. However, there are many other apps, free and paid, to use.
Once you do this, you can move on to the next point.
2. The 50/30/20 Budget Rule
Senator Elizabeth Warren talked about this concept in her book All Your Worth: The Ultimate Lifetime Money Plan. Of your net pay:
50% should go towards your needs such as bills,
30% should go towards your wants,
20% should go towards your savings.
This is a simple rule that anyone can use. It can be easily adjusted however it requires discipline to stick with. Personally, I have set up my bank account so that every fortnight 25% of my income is automatically transferred from my cheque account to my savings account before I am tempted to spend it.
Another thing is to think, “okay, I’d like to have more money, I can either earn more money or spend less money (or both),“. To increase your income, you can pick up a side-gig, work extra hours etc. For most people, in terms of time and effort, it’s easier to reduce your expenditure than to earn more money. Because I value your time, here are four simple questions to ask yourself whenever you want to buy something:
Can I do without this?
Do I already have one of this or something similar?
How will this enrich my life?
Is there something else that I could be using this money for?
This way of thinking forces you to actively consider every purchase you make and helps you decide what is really important to you. The point in asking all these questions is to address the ultimate question: “Do I really need this“?
3. The 6-month safety rule
Once you have the 50/30/20 rule down, your next goal should be to save enough money for 6-months worth of expenses. This serves as a sort of emergency fund in the event of major life-changing circumstances such as losing a job, moving from a house, death of a loved one etc. I did this during my 2-year residency and was able to sustain myself for six months when I was unemployed and looking for a job.
Final Thoughts
This was a short post in a long time (no pun intended). Had to deal with real-life events and didn’t want to delay the this post any longer so I decided to power through and pump out this post just after midnight. I’ll be putting out more posts more often as I’m starting to get into the rhythm of writing.
Until then, I’m off to bed now. Kuwa salama na kukuona karibuni hivi! (be safe and see you soon!)
