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Creating a personal budget how to#

How much did you spend on feeding? How about your transportation?Įxactly how much did you send to your siblings/family? (Not how much you think you sent.) IT IS NOT FINE! It might seem like it is, but it’s a dangerous place to be. If you can’t answer this question, it’s fine…Īctually, I lied. Validate or invalidate your assumptions (For example, you might think you spend more on transportation than feeding, but creating and sticking to a budget will help confirm if that’s true).

Organize your spending and reduce/eliminate unnecessary expenses.

Imbibe better money habits (and cut out bad ones like impulse buying).

Monitor your financial performance (Is it excellent, good, average or poor?).

That way, you’ll not have to spend too much from your salary in the month of the wedding itself.

Adequately prepare for projects/plan for the future (If a close friend’s wedding is in 5 months, instead of waiting till then, you can begin budgeting and keeping aside a certain amount towards Aso-Ebi and wedding gifts.

Track if you’re sticking to your financial goals.

Gain clarity about what’s required for your financial plan.

Creating a personal budget how to#

Know how to manage your money effectively.

It then helps you know where to make the necessary adjustments for financial success. Remember the story we started with?Īs we often say at Cowrywise, what you don’t measure, you can’t multiply.Ī budget helps you measure your finances – possibly every penny made and spent. This is because there might be money leaks you’re not aware of that only a budget can help you fix. Wanting to build wealth for the long-term but ignoring this important basic step of budgeting can be likened to someone working really hard to pour water into a basket. These are to have specific figures or estimates to ensure your budget is close to accurate. These include but are not limited to your: When creating a budget, you need to consider a number of things. – Edwards Deming, Statistician What data do you need to create a budget? Without data you’re just another person with an opinion. Without data, you will create a wishlist instead of an actual financial plan.

However, a financial plan may be created independently as well, as long as it is devoid of sentiments and is backed by data. It is so crucial that some high-net-worth individuals/families employ a financial firm or planner to help create one for them. It begins with where you are and creates a roadmap for where you want to be monetarily. What’s a financial plan?Ī financial plan is a comprehensive understanding and evaluation of your current financial state in comparison to your long-term goals, as well as the steps needed to achieve these set goals.

It’s hard, if not impossible to create a personal financial plan without a budget but just before I go on with the benefits of budgeting, let me quickly explain what a financial plan is. Why are budgets so important?īudgets are essential in helping you create a financial plan. They can be created by individuals or corporations and are usually short-termed to maximize efficiency.īudgets are not only for people who “know” or “ like” numbers, but can be as simple as you want. What is a budget?Ī budget is an approximation of one’s income and expenses for a set (future) period of time.Įffective budgets are evaluated periodically to eliminate spending assumptions and they help determine if one spends more or less than their income.īudgets are essential when measuring inflow vs outflow. This is one of the reasons people wake up at 50 sometimes and begin to ask “What did I use all my money for?” “What did I spend all my life doing?”Ī budget would have been a perfect way to answer that because data doesn’t lie. They were then able to block these money leaks – or at least drastically reduce them. However, one day, his wife asked him about all the money they were making and asked him to give an account but he became defensive – “I’ve spent most of the money on this family and you know it…”īut there was no budget, therefore, there was no way to show a corresponding expense list that showed that most of the money had been spent on the family for real.Īfter this, they created a budget (which includes an expense list) and found that a lot of the funds had actually been going to friends who wanted to borrow money and black tax (aka obligations or funds to assist family members). He started getting speaking engagements that paid more than he ever thought possible.

List and calculate all your (net) incomeĪ well-known Nigerian speaker once shared how his family’s finances took a turn for the better.

Create a budget spreadsheet or use a budgeting app.