Before we share this budgeting guide, let us be real for a few seconds. We don’t know about you, but there comes a time when income checks in that the mind freezes for a minute. It freezes to a point that things that were priorities freeze as well. If you can relate with this then worry no more. I know you are tired of wondering where your paycheck disappears to. You’re not alone. Creating a budget that actually works is the cornerstone of financial stability. But let’s be honest, many budgeting methods feel restrictive and unsustainable and most of the time they are more theoretical than practical. This guide is your roadmap to building a realistic budget, mastering your finances, and achieving your money goals. We’ll cover everything from tracking expenses to setting realistic goals, ensuring you create a personal budget that fits your lifestyle. Say goodbye to financial stress and hello to financial freedom!”
Budgeting Guide: Understanding the Power of a Working Budget
Before diving into the how-to in this budgeting guide, let’s understand the ‘why.’ A well-crafted budget provides clarity, control, and a pathway to your financial aspirations. The contrary is that when you don’t have an intentional plan then any plan goes and the plan that goes can lock you in a corner. It’s not about deprivation or being stingy; it’s about making informed choices. A good budget helps you to:
- Gain control over your spending
- Identify areas for savings
- Achieve your financial goals (e.g., debt payoff, home purchase, retirement, dream holiday).
- Reduce financial stress.
Let us approach this budgeting guide in a step by step manner to make it understandable and easy to execute.
Step 1: Track Your Current Spending
Budgeting guide 101: The foundation of creating a budget is by first understanding your current spending. This is a key aspect of this budgeting guide. The critical question you need to ask yourself is what am I currently spending on? This is to clearly identify and take note of your current spending patterns:
- The first step to creating a realistic budget is understanding where your money currently goes. This involves tracking your expenses for at least a month. With modern technology you can easily track this by checking either your bank statement or Mpesa statement. Essentially check the statement of your payment modes.
- There are other methods for tracking your expenses and this include:
- Using budgeting apps. In this technological era many financial applications include an expense tracking module. Most banking apps have this like Loop app, Mpesa app, others like Chumz among others.
- You can use spreadsheets to track your expenses.
- The other option is saving receipts and having a calculator in handy. This is if you are not well conversant with technology and in that case you can reach out to us for help – Get in touch.
- After tracking your expenses you need to categorize your expenses (e.g., housing, food, transportation, entertainment and so on).
Step 2: Calculate Your Income
The second step to this budgeting guide is to calculate your income. It is very important to know your limits so as to clearly define your spending limits. You cannot budget for what you don’t have. It is important to contain your expenses within your income.
- Determine your total monthly income after taxes. This is your baseline for budgeting.
- Include all sources of income (e.g., salary, side hustles, investments and any other source of income).
Write all your sources of income down and be very realistic and specific. Refrain from using estimates, work with actuals.
Step 3: Set Realistic Financial Goals
The next step in this budgeting guide is to come up with realistic financial goals.
- What do you want to achieve financially? Define your short-term, mid-term and long-term financial goals. The goals could be to come out of debt in the short-term, to start an investment in the mid-term and to buy a retirement home in the long-term.
- Make your financial goals SMART (Specific, Measurable, Achievable, Relevant, Time-bound).
Step 4: Choose a Budgeting Method
There’s no one-size-fits-all approach to budgeting, however the most ideal method is to define your budget in portions or percentages. This makes it easier to manage changes in income, whenever there is a fluctuation in income it will still fit in the defined budget. The most ideal budgeting method with regards to the percentages is the 40-20-20-20 rule. Where 40% of the income covers all the expenses, 20% of the income goes to investment, 20% goes to saving and the remaining 20% goes to giving. More often than not people ignore giving as part of their budget and yet there are always instances where you give to weddings, funerals and different noble courses. It is important to include this category in your budget. Explore different budgeting methods and choose one that aligns with your personality and lifestyle.”
- Other budgeting methods include:
Click on the different budgeting method to explore it more.
Step 5: Create Your Budget
After choosing your ideal budgeting method that suits you, now it is time to action it. This is the part where you turn this budgeting guide in to action.
- Now it’s time to put it all together. Allocate your income to different categories based on your goals and chosen budgeting method.
- Use a spreadsheet or budgeting app to create your budget.
- Be realistic when implementing your budget
Step 6: Review and Adjust Regularly
This is should be an ongoing thing that helps you align your finances to your needs
- Budgeting is an ongoing process. Review your budget regularly (weekly or monthly) and make adjustments as needed.
- Track your progress and adjust as needed.
- Don’t get discouraged if you slip up. Get back on track.
Creating a budget that works is within your reach. By following these steps in this budgeting guide and staying consistent, you can take control of your finances and achieve your dreams. Start today and experience the peace of mind that comes with financial stability. What are your biggest budgeting challenges? Share them in the comments below or reach us on CONTACT or chat with us on WhatsApp – Click Here
Budgeting guide 101
