One of the messages that I love receiving is the one saying “your account has been credited xxx Frw”. Now the joy it brings, if not well prepared, can last only a few days. I’ve been spending my income anyhow for a long time till I realized it only lasted two weeks after the payday. After those two weeks I’d start borrowing some more money for me to survive till the next paycheck. This frustrates so much and brings in some stress. I had to stop it. I always told myself that I can’t be working in a financial institution being a finance girl and make poor financial decisions. I realized it also happened to most of my friends and it had to change.
I did a small research, read books, asked my mentor friends and found out that I had to practice what I was doing at work.Now on a personal level. I made some changes but failed. However there is this one thing that helped me all along and made me get out of debts and spend my life on my means, debt free. That one key to my and your financial freedom is called budgeting.
Budgeting is the process of planning how you will spend your money. It identifies clearly what you are earning and how you will spend it. By making a budget you get to know in advance if you will have enough money to do the things you need or would like to do. If you find out that the money you have won’t be enough, it will help you to prioritize your spendings and focus your money on things that matter most for you.
Steps to create a budget
Now this is the part where I need your attention most. Take a pen, a paper, sit down and bring your cup of mukaru with you or whatever you are having as you read this. I hope that which you are having won’t distract you. Mukaru is better. So here we go..
- Identify your income
If you are a salaried person, yayy to you. This is easy for you. What you need to do is write down your monthly income. If you’re not salaried, which means your income is irregular, write down the minimum payment you ever received. Say at one time you received 5000Frw another time 10000Frw, then note down your income as 5000Frw. Now look at that number twice..and we go to the next step.
- Identify your expenses
Now here we will have to understand two notions. There is what we call fixed expenses and variable expenses.
Fixed expenses are those things you pay for with which their cost doesn’t change on a monthly basis. Like if you always pay electricity bills of 8000Frw every month, then that bill is fixed. Some of the common fixed expenses are food, rent, electricity and transport fees.
Variable expenses are those that change overtime and mostly they don’t affect your well being. For example you don’t need to buy clothes every month. You can buy one every four months or even a year.
Once you are aware of all the things you spend your money on, you will be able to differentiate your expenses and then be able to prioritize them. Note down all your expenses but start with the fixed ones then the variable ones.
- Create a fund
After you have identified your expenses and income, now note down an amount that you’d like to allocate to other expenses that occur seasonally but are necessities. Some of those for me are birthday gifts, clothes for special parties and other unexpected ones.
- Do the math
Hey this is not the scary math that we all avoid hahaha. Now that you have identified your income and what your expenses are, add up all the expenses…done? Now take your income and subtract the total expenses…done? Does it balance? I mean are you getting a positive number? If yes, good. If not, take a hankie,dry off your tears, calm down and let me tell you something: it’s a bad sign but it can get better. Now look back at those expenses and prioritize them. Now remove the unnecessary till it balances.
Now your budget is ready. Look at it: that is who you are, financially. Make daily decisions based on that.