My Budget & I: 2020 Budget Edition

I lost my paternal grandpa some months after I was born. I never knew him apart from the stories from my dad and my grandma. But I was good friends with my maternal grandpa. He was a soldier and later a teacher. A combination of these two pieces of training defined him. He was a disciplinarian and a man of wise counsel. I learnt a lot from him in the few times I visited him.

He advised me as a teenager to try and make good friends while in University as they are the ones I will launch out in life with. I once asked him why he did not become a Chief in the village. He told me that it is the same reason he is not a knight in the church. He told me he cannot be in exclusive/secretive meetings. He said he doubts if anything good comes out of secretive meetings. I took counsel that day.

Once someone gave me NGN 20. See this was in the early 90s and this was big money for a child. So, I fantasized on what I can do with the money. I told my grandpa I can cook a pot of soup with it and still have much left. After a while , I came back to him to tell him that I can make two trousers for myself and three shirts. A little while, I came back to say “Do you know I pay for a return trip from the village to the township?” I came up with many combinations and permutations of what that money could get me.

When it seems I have exhausted my points, Grandpa looked at me and said: “Gabriel, you need to use this money to buy a Mercedes Benz so that I can have peace”. I got the point.

What has my grandfather got to do with budgeting?

Very simple, he saw through my lack of planning and foresight. He saw that I saw the funds I had as inexhaustible. As such, I was going through the motions in my head. There was no plan, no budget…just a young man with NGN20, who thought he could buy the whole world.

Why Do I Need A Budget?

Budgeting is simple. It is creating a plan to spend your money. Yes…your money. That final plan/outcome is called a budget. Simple. Not complicated. What you get out of this is that it “forces” you to think of what you have and don’t have and ways to fund your plans. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

In essence, budgeting is simply balancing your expenses with your income. If your income exceeds your expenses, then you are in a good place but you still need to know what to do with the excesses. If your expenses exceed your income, you are in debt. Automatic. This is where the problem starts. Many people don’t realize that they spend more than they earn and slowly sink deeper into debt every year. The consequences of being in debt are too many to mention.

If you don’t have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you. All in all, a budget provides a simple way to know the state of thy finances.

Benefits of A Budget

Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt. In my opinion, have a definite plan to pay off your debt first as you plan for other things. Let the payment of the debt be a priority.

Budgeting is the most basic and the most effective tool for managing your money. Yet, most people avoid doing it because it is work. Well, nothing works on its own except you put a plan around it.

A budget enables you to allocate your funds based on your priorities. It is good to know your financial state and work within its ambits. The choices you will make will be engendered from that plan.

The drudgery of creating a budget weekly, monthly or yearly pays off especially when it becomes habitual. Let me list the benefits.

1. It Helps You Keep Your Eye on the Prize

What are your financial goals? How do you intend to achieve them? well, a budget helps you figure out your long-term goals and work towards them. Not eery shiny object or hot deal needs to be keyed into. If you just drift mindlessly and aimlessly through life, spending without a plan with the hope that the money will always be there.

A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. It may hurt on the short term when you realize that your budget cannot afford the latest music gadget of your choice but when you remember that you are saving towards the birth of your first child and you need to move to a new apartment in 6 months time, that gives perspective to your delayed gratification.

2. It Helps You Stay Organised

Nothing messes one up, like not knowing what you spent the last NGN100,000 on or why there is a deficit that cannot be accounted for. By dividing your money into categories of income and expenditures, a budget makes you aware which category of expenditure takes which portion of your money. And which stream of income you should focus on the more. With that, it is easy to make adjustments and take dressing.

3. Provides The Big Picture Overview

When you budget and take a “big picture” view, you will see potential money problems in advance, budget deficits and be able to make adjustments. If you need to take a debt to bridge/finance the shortfall, so be it. But at least it is part of the plan. Taking debt is not necessarily evil if the debt is necessary. More so, budgeting shows you how much a debt load you can realistically take without being stressed or if taking the debt load is worth it in the first place.

4. It Helps You Prepare; Even for Emergencies

Life happens. Things fall out of order. Financial turmoil sometimes come unaccounted. Illness, loss of business, layoff etc can destabilise even the best laid out plans. If your budget had a place for emergency plans, then you can draw from it.

Your budget should include an emergency fund that consists of at least three to six months worth of living expenses. This absorbs some shock before you can find your feet again or recover. Build an emergency plan into your budget, set realistic goals and start small. Little drops make the ocean

5. It Ensures You Spend Only Your Money

In these days of easy loans especially when you work for a blue-chip or multinational, you may start spending money that you have not earned yet. Don’t feel happy that credit is easily extended to you. You should be wary. Of course, there are times that you need those life lines, but those are exceptions. We cannot live our lives based on exceptions.

If you create and stick to a budget, you’ll never find yourself in this precarious position. You’ll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Sure, crunching numbers and keeping track of a budget isn’t nearly as much fun as going on a shameless shopping spree. Caveat Emptor….I love to shop but I always plan for it.

6. It Helps Shed Light on Bad Spending Habits

Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Do you honestly watch all 500 channels on your costly extended cable plan? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and re-focus your financial goals.

7. Enables Financial Dialogue With Your Spouse

If you share your money with your spouse, family, or anyone, a budget can communicate how you use money as a group. This promotes teamwork on working for common financial goals and prevents conflict on how money is used. Creating a budget in tandem with your spouse will avoid conflicts and resolve personal differences on how your money is spent. Budgeting teaches family members spending responsibility and accountability.

Of course, this is just guidelines. There are countless other advantages of following a budget and obviously many ways to go about it. So, what are you waiting for? What is your excuse? It is time to start budgeting!

You can check other articles I have written on money/finances/ financial intelligence. They are Money Talk: December Happiness & January Blues, The Money Question 2018 Edition, Saving The Pennies, I’ve Got Money On My Mind, Money & Money Management Skills, 7 Common Money Mistakes and 7 Common Money Mistakes (Part II), 10 Common Money Mistakes (Part III), 8 Money Mistakes (Part IV), Stock Market Investment Basic , Things Not To Do With Money, Yearn…Then Learn To Earn, Find A Financial Mentor, Creating A Budget That Works, 10 Tips For Effective Budgeting, 7 More Tips For Effective Budgeting (Part 2), The Lion King: Compelling Economic & Financial Lessons and The Best Investment Secret Ever

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