General

Budgeting: Personal Finance Context

It’s the budget season again. In Nigeria, The Federal Government has submitted the 2023 budget to the National Assembly for consideration. Most sub-national states have also forwarded the state’s budget to the state house of assembly.

Corporates and individuals have also caught the bug. In my company, in my role as the Chief Financial Officer, I oversee the budgeting process. I have spent three weeks getting the 2023 budget ready for board approval.

My budget for 2023, which is a subset of my 5 years financial plan is also in the works. What about you? How much money did you spend last month? Do you have your personal financial statements? If you can’t answer these question, you need to start budgeting and book keeping.

Why Should I Budget?

Have you ever gone to the store without a list to buy something? Most of the time, you end up buying things you don’t need, and you only realize this after you’ve spent all your money. So you now have regret and an unnecessary possession.

A lack of a budget is one of the reasons some people wake up later in life wondering, “What did I use all my money for?”

Given the current state of the economy, with inflation exceeding 21% and P2P USD/NGN in Nigeria trending towards NGN800/USD. Flooding, low productivity, food insecurity, and physical insecurity are all factors contributing to rising living costs. A budget can assist you in effectively managing your resources and growing your wealth.

What is a budget?

A budget is a tool for making financial decisions over a set period, usually a month or a year. You can make a budget for any project or activity. However, there are three major types of budgets. These are:

  1. Income Statement Budget
  2. Financial Position budget
  3. Cashflow Budget

How Often Can I Budget?

For most individuals, the cash flow budget will suffice. Several factors must be considered when developing a cash flow budget. Among these are, but are not limited to:

  • Income
  • Expenses
  • Outstanding Loan payments
  • Savings plans
  • Investments
  • Insurance plans

Here are five practical steps to follow when preparing your personal cash flow budget. These are:

  1. Estimate your monthly income
  2. Consider your financial priorities and expenses.
  3. Design the budget.
  4. Track your actual financial activities.
  5. Review your budget regularly and adjust your budget as needed.

Keep track of your spending and adjust your budget as needed.

How Do I Create a Cash Flow Budget?

For most individuals, the cash flow budget will suffice. Several factors must be considered when developing a cash flow budget. Among these are, but are not limited to:

  • Income
  • Expenses
  • Outstanding Loan payments
  • Savings plans
  • Investments
  • Insurance plans

Here are five practical steps to follow when preparing your personal cash flow budget. These are:

  1. Estimate your monthly income
  2. Consider your financial priorities and expenses.
  3. Design the budget
  4. Keep track of your spending and adjust your budget as needed.

Estimate your monthly income

The first step in creating a monthly budget is determining your monthly income. You must exercise caution when developing your budget to avoid going into debt in the long run by not spending more than you earn.

When calculating your monthly income, consider stable revenue streams. Your salary should be mentioned. To calculate your income, use your net salary. This is the money left in your account after payroll statutory deductions.

Watch out for the concluding part of this article.

#MMBA11

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