How To Budget: A Simple Guide To Budgeting For Beginners

September 8, 2022

Written by Dorcas Obenewaa Owusu

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Alright, folks, today is the day we talk about the “B” word. Yeah, this conversation has been a long time coming and it’s high time we discussed a thing or three. In case you are lost, the “B” word doesn’t refer to anything profane – I’m talking about a budget.

The mere mention of a budget is enough to cause some people to panic. But budgets are not meant to be feared, on the contrary, budgets give you the freedom to spend money without without going broke.

What’s a personal budget?

A personal budget simply tracks money that comes into your pocket versus money that goes out. It helps you determine what to spend, save, or use for some other purpose based on your income and expenses.

Why should I have a budget?

Perhaps the most important thing about creating a budget is that it helps you monitor your spending. That way, you don’t go to town to buy A, B, and C, only to realize you rather bought an extra Z, G, and W that you don’t need. With a budget, everything is already planned and accounted for before you spend  a dime. It’s easier to allocate money to specific expenses instead of blowing it at go

Plus, budgeting helps you achieve your financial goals. Whether you want to save money for retirement, an emergency fund, your business, or a birthday gift, a budget is just what you need. Just think of all the benefits of having full control over your money:

  • You stay debt-free
  • Provide for emergencies 
  • Money to finance your future projects

A budget frees you from financial stress. You sleep better at night knowing your financial house is secure and in order. 

How do I create one?

There are many ways to create a budget. But since this is beginner-friendly, let’s stick  to a simple  technique that anyone can use – no matter their income 

Calculate your income

The income I’m referring to is the net income you receive each month as an employee. Net income means that all taxes have already been deducted from your salary before you receive it. For freelancers and people who have side gigs, subtract any taxes or business expenses from the money you earn to get your actual income. 

Make a list of your expenses

There are two types of expenses: fixed expenses and variable expenses. Fixed expenses are expenses that stay the same. (For example, utility bills, rent, and savings). Variable expenses are the opposite, meaning they change regularly (e.g., eating out and buying new clothes). 

Identify each and every thing you spend money on and determine if it’s a fixed or variable expense. 

Start with fixed expenses and determine the amount you spend on each of the things listed. With variable expenses, estimating the “right” amount can be a little difficult. A good trick is to calculate all your expenses for the last 3 months and divide by 3. This will give you an average amount that you can use for a rough estimate.

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Next, you need to subtract your expenses from your income. You will probably notice one of these three things:

Your income is higher than your expenses

Your income is the same as your expenses

Your income is less than your expenses

If you belong to the first category, congratulations, you have extra money to put into your savings. If you belong to the second category, congratulations as well – but you can still work on reducing your expenses a bit.

For those in the third category (and that’s most people), your best bet is to make a few adjustments. You can do this by reducing your variable costs. Consider bulk shopping and cooking to save money on eating out. Subscribe to flexible data packages from your network operator (MTN, Glo, AirtelTigo, and Vodafone) to lower your weekly data costs.

How can I stick to my budget?

Sticking to a budget requires a lot of patience at first. One way to make it easier is to automate your budget. Use apps like Achieve to create a budget and easily allocate funds to specific purposes. You can also track your spending to make sure you aren’t blowing money. Take a few minutes each day to write down what you’ve spent and keep track of your budget.

The envelope system is another way to avoid overspending. After you create your budget, divide the money into different envelopes for different spending categories. There is a hard spending limit because once the money in a certain envelope is used up, you can spend any more until you create a new budget for that envelope the next month.

So how often should I create it?

Well, the best answer to that question is that it depends. Some financial experts believe it needs to be created every month, while others advocate a bi-weekly or even weekly frequency. 

Also, your budget should take into account certain changes or situations, such as a sudden increase in prices, birthday celebrations, the expectation of a baby, or a job change. Therefore, it’s important to review and adjust it at least once a month. 

You should also conduct quarterly and annual budget reviews to evaluate your budget over longer periods of time.

And that’s it! A simple, straightforward guide to creating your own budget. As always, I’ll see you on the next post

 

 

About Mesika

Hey there, my name is Isaac Sesi. I built Mesika to provide free personal finance resources online to help young Ghanaians become smarter about their money.

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