The Sunday Mail
Dollars & Sense
Kudzai Mubaiwa
An important tool for managing money is the budget. It reflects both in-come and out-go, that which is received and that which is to be spent. The aim is to balance, or to have more income that expenses. There has to be some methodology to one’s spending, and the budget is the guide. It must be used both in theory — on paper and in practice — applying it. Often people remark that they earn very little and thus it is pointless for them to budget. If anything, it is people who earn very little who must be more careful with money. Similarly, those that think they have more than requires budgeting may realize that the exercise helps them optimize how they deploy their resources. In order to implement a financial plan, a tool to compare income and expenditure is required – this is the budget.
Budgeting must be done over set periods, annually, monthly, even weekly – tied to your income cycle. The idea is to be able to balance on paper first, essentially plan your work, then work your plan! A budget will help you order your spending in accordance with your priorities for that period. It helps you see where you can create fiscal room for special and important projects from present income. It really is the space where you can determine, using numbers, what your affordable lifestyle is. The process includes establishing the maximum spend, listing expenses, re-working in need and living according to the budget thereafter. Those who master the budget, master their financial lives!
The first step is always to approximate your average monthly / periodic income. It is logical to do this because whatever you make is the maximum you should spend. (A quick recollection of grade three mathematics will remind you that the answer to five minus eight is “it can’t!”) You should not spend more in a month than you make in that month, that is the classic definition of living beyond your means. Your income dictates where you can stay, eat, learn and how you travel, what you wear. These come down to personal choices, and in this Zimbabwe there is something for every pocket. Yours is to ensure whatever combination of lifestyle choices you make can fit on your income.
The second step is to note all your monthly / periodic expenses and the cost that comes with them. You want to be as thorough as possible here, being aware that there are always many things to pay for, after basic living expenses such as rent and utilities there are expenses that come with school, personal care, transport, communication, groceries, insurance cover, family and so forth. Be sure to always make a provision for the entertainment of your choice — it is unrealistic and unbalanced to route every cent towards “sensible” things only, the body that works must also be rewarded and doing this ensures you do not end up on the other extreme. One can check online for sample budgets to trigger items that may have been left out, every little cost adds up, including hair or barber costs!
The third step would be to compare the difference between the two totals — income and expenses, and see if you have excess income over expenditure or expenditure over income. The ideal situation is to have excess income over expenditure, but balancing is a good start. The totals and the outcome would lead to the next step four, revisiting budget line items to reprioritise. This step will necessitate reducing spend on some lines, or completely removing certain expenses, up until the total expenses for that time period match the income. At that point, on paper you will have balanced. This process may require two or three cycles as you relook and reconsider what matters most in the instant. There are items that will not be easy to change such as rent, but if the budget persistently fails to balance, that will be your cue to relook your whole life and contemplate moving areas, downsizing house, changing children schools, parking a vehicle and opting for commuting to work. There is always something you can do to make the essentials fit on your budget, guided by the available income.
The fifth and final step is to then live according to the budget and record notable changes over time. You will likely discover that you over or under budgeted on some budget lines in reality, but it is a journey rather than a sprint. Most times when people make budgets they are off by some thirty percent or so. Over time — three to six months, you will find a working model and have a fair idea of what you spend each month. This then, is your present lifestyle. If income increases, you can bring in those items you had removed or up the ones you had reduced.
That is how lifestyle should be done in combination with a budget. To live without a budget at all, is to live with no plan, and to live recklessly. To live with a budget is to have a plan, and live purposefully. The monthly living plan can then work with an annual budget for major items — things you can save or pay for monthly. Consider the budget as the friend that guides you financially, not a foe. Keep the records of your budgets, and see over time what you could have done better, reflect on past choices, then do better! Most of us will work better from a budget on available funds than spending first then wanting to find the resources to suit a selected lifestyle. Show respect to your money by planning for it before spending it, and your money will equally respect you!
Kudzai M Mubaiwa is a financial wellness trainer and author of the personal finance book “Take Charge of Your Personal Finance”. She also podcasts on mari.co.zw. Contact her on [email protected] or twitter @kedukudzi
