BUDGETING MONEY

Budgeting money refers to the process of creating a plan for how you will allocate and manage your income. It involves determining how much money you earn and deciding how you will spend or save it. By budgeting money effectively, you can track your expenses, prioritize your spending, and work towards achieving your financial goals. It helps you to manage your finances responsibly and make informed decisions about where to allocate your money. Ultimately, budgeting money is a key aspect of financial planning and is crucial for achieving financial stability and security.

HOW TO BUDGET MONEY – A 10 STEP GUIDE

Budgeting money is a crucial step in managing your finances and achieving your financial goals. Here are some steps to help you budget your money effectively:

1. Calculate Your Income – Start by determining your monthly income, including your salary, bonuses, and any other sources of income.

2. List Your Expenses – Make a list of all your monthly expenses, including fixed expenses like rent/mortgage, utilities, insurance, and debt payments, as well as variable expenses like groceries, entertainment, and transportation.

3. Differentiate Between Needs and Wants – Differentiate between essential expenses (needs) and discretionary expenses (wants). Prioritize your needs and allocate a portion of your income towards them.

4. Set Financial Goals – Determine your short-term and long-term financial goals, such as saving for a vacation, buying a new car, or building an emergency fund. Set a specific timeline and target amount for each goal.

5. Create A Budget – Use a budgeting tool or spreadsheet to allocate your income towards your expenses and financial goals. Make sure to budget for savings and emergency funds as well.

6. Track Your Spending – Keep track of your expenses regularly to ensure that you are sticking to your budget. Adjust your budget as needed based on your spending patterns.

7. Cut Back On Unnecessary Expenses – Identify areas where you can cut back on expenses, such as dining out, subscriptions, or impulse purchases. Redirect the saved money towards your financial goals.

8. Build An Emergency Fund – Set aside a portion of your income towards building an emergency fund that can cover 3-6 months of expenses. This fund will provide a financial safety net in case of unexpected events.

9. Review And Adjust Your Budget – Periodically review your budget to track your progress towards your financial goals and make adjustments as needed. Stay flexible and adapt your budget to changing circumstances.

10. Seek Professional Help If Needed – If you are struggling to budget your money or manage your finances, consider seeking help from a financial advisor or counselor. They can provide personalized advice and guidance to help you achieve your financial goals.

50 – 30 – 20 BUDGETING RULE

The 50 – 30 – 20 budgeting rule is a simple guideline for managing your finances and allocating your income effectively. Following the 50 – 30 – 20 budgeting rule can help you maintain a balanced financial plan and ensure that you are prioritizing both your current needs and future financial goals. According to this rule, your after-tax income should be divided into three categories as follows:

1. 50% FOR NEEDS 

This category includes essential expenses such as housing, utilities, groceries, transportation, and healthcare. These are the expenses that you cannot live without and are necessary for your basic needs. Allocating 50% of your after-tax income for needs is a key component of the 50-30-20 budgeting rule. This category covers essential expenses that are necessary for your basic needs and daily living. Some common examples of needs include:

1. Housing – Rent or mortgage payments, property taxes, homeowners insurance, and utilities (electricity, water, gas, internet).

2. Food – Groceries, dining out, and household supplies.

3. Transportation – Car payments, gas, insurance, maintenance, public transportation costs.

4. Healthcare – Health insurance premiums, copays, prescriptions, and medical expenses.

5. Basic clothing and personal care items.

By allocating 50% of your income towards these essential expenses, you ensure that you are covering your basic needs and living within your means. It is important to carefully track your spending in this category to avoid overspending and prioritize necessities over wants. By managing this category effectively, you can build a solid foundation for your financial health and well-being.

2. 30% FOR WANTS 

This category covers discretionary expenses such as entertainment, dining out, shopping, travel, and hobbies. These are the expenses that add enjoyment and fulfillment to your life but are not essential for survival. Allocating 30% of your after-tax income for wants is another component of the 50 – 30 – 20 budgeting rule. This category covers discretionary spending on non-essential items and activities that bring enjoyment and satisfaction to your life. Some common examples of wants include:

1. Entertainment – Dining out at restaurants, movies, concerts, streaming services.

2. Travel – Vacations, weekend getaways, travel experiences.

3. Hobbies – Sports activities, classes, art supplies, books.

4. Personal care – Spa treatments, beauty products, gym memberships.

5. Shopping – Clothing, accessories, gadgets, home decor.

By setting aside 30% of your income for wants, you give yourself the flexibility to enjoy life and indulge in activities that bring you joy and fulfillment. It’s important to strike the right balance between spending on wants and needs to ensure you are prioritizing your financial well-being while still enjoying the fruits of your labor. Tracking your spending in this category can help you make informed decisions about where to allocate your discretionary income and avoid overspending. Remember that it’s okay to treat yourself occasionally, but moderation is key to maintaining a healthy financial lifestyle.

3. 20% FOR SAVINGS AND DEBT REPAYMENT

This category is for saving for your future goals, emergency fund, retirement, and paying off any debt you may have. It is important to prioritize building a financial cushion and reducing debt to improve your financial stability and security. When allocating 20% of your income towards savings and debt repayment, it is important to have a clear plan in place to achieve your financial goals. Here are some steps you can take to effectively manage this allocation:

1. Set Specific Savings Goals – Determine what you are saving for, whether it is an emergency fund, retirement, or a large purchase. Having clear goals will help keep you motivated and on track.

2. Create A Budget – Track your income and expenses to ensure that you are able to allocate 20% towards savings and debt repayment. Look for areas where you can reduce spending in order to free up more money for savings.

3. Prioritize Debt Repayment – Start by making minimum payments on all debts and then focus on paying off high-interest debts first. Consider using any extra income or windfalls to accelerate your debt repayment.

4. Automate Your Savings – Set up automatic transfers from your checking account to your savings account each month. This can help you save consistently without having to think about it.

5. Review and Adjust – Regularly review your progress towards your savings and debt repayment goals and make adjustments as needed. Consider increasing your savings rate or reallocating funds if necessary.

By following these steps, you can effectively allocate 20% of your income towards savings and debt repayment, helping you build a strong financial foundation for the future.

BENEFITS OF 50 – 30 – 20 BUDGETING RULES

1. It simplifies budgeting process.

The 50-30-20 rule provides a simple and straightforward framework for allocating your income towards different financial goals.

2. It encourages saving.

By designating 20% of your income towards savings, the rule helps you prioritize building up your savings and emergency fund.

3. It helps you live within your means.

By restricting your spending to 50% of your income on essentials and 30% on discretionary expenses, the rule encourages you to live within your means and avoid overspending.

4. It provides a balanced approach to budgeting.

The 50-30-20 rule ensures a balanced allocation of your income towards necessities, wants, and savings, helping you achieve financial stability and security.

5. It creates a foundation for long-term financial success.

By consistently following the 50-30-20 rule, you can establish healthy financial habits that will set you up for long-term financial success and security.

ILLUSTRATION OF 50 – 30 – 20 BUDGETING RULE

If your monthly AFTER tax income is ₦150,000. Your 50 – 30 – 20 distribution are as follows – 

1. Needs (50%) = ₦75,000

2. Wants (30%) =  ₦45,000

3. Savings (20%) = ₦30,000

Total = ₦150,000

The best way to budget are the simplest, you just have to define your goals, pick a plan and be ready to stick with it. For more budgeting advice, including how to prioritize your savings and debt repayment, review our tips for how to develop self discipline.