Budgeting

 

Budgeting is creating a plan of how to use your money. It involves indication of the total amount of money received and a breakdown of this money according to how much money is spent on different things. A budget can be done on a short term basis e.g per month or when one receives an income, and on a long-term basis e.g. per year since some items have to be paid for annually.

Advantages of budgeting

It helps people to plan their spending.

It helps people to keep a record of how money was used.

It helps people to know how much money they have available and how much they can spend on different items.

It helps in controlling the use of money.

It helps people to live within their means.

Simple budgeting equation: Income - expenses = total cost of budget

First calculate how much income you have available from all sources per whatever period of time e.g. per month or per year. List all the regular expenses and allocate money accordingly. When this has been done, make sure that there is a balance between your total income and expenditures. Your expenditure should never exceed your income. Once your budget is complete stick to it as much as possible to avoid imbalances and shortages.

SAVINGS

Saving is storing away some money for future use. It is important that when budgeting some money should be allocated to saving. Financial experts advise that people should save at least 10% of their salaries. There are different forms of savings that can be done with different financial institutions such as Banks, insurance companies, building societies etc. Such institutions offer different kinds of schemes and services. For one to be able to utilize these services effectively it is advisable to know one’s financial needs and the type of services that can best meet those needs. Managers in such financial institutions are available to give advice on their services. When deciding on the type of saving you require, it is important to consider your short-term, medium-term and long-term financial needs to ensure that provision is made for all of them.