At the beginning of this year, I had a lot of expectations for my financial plans. One of my major resolution was to become financially independent before the year ends. Unfortunately, due to the covid-19 pandemic, everything has turned upside down. Most of us are victims of either the job losses, the pandemic or even both. As a result, the highest percentage are struggling financially.
Do you have a problem with your budget? If you do. I have good news for you. Since there is a greater need for us to learn on how to deal with the situation at hand and stay financially afloat . I will be discussing on some tips on how to adjust our budgets so that they can fit with the current uncertainties.
From the previous blog on Budgeting Tips For Beginners . A personal budget comprises of; 1. Income or money coming in. 2. Expenses or money going out. For this case, we can use this arbitrary personal budget for the month of June 2020 for several illustrations.
Whatever we call our necessary expenses will always grow to equal our income unless we protest to the contrary. Its therefore imperative for us to stick to our budget . If we spend more than our budgets implies, we are likely to have a budget deficit which is very common. The vice versa leads to a budget surplus. A zero- based budget is that which the total income is equivalent to the total expenses.
Changing a budget involves adjusting each component of the entire budget. These changes may be done as follows:
A. Adjusting The Income:
When our cash flowing into our pockets reduces, definitely, our entire budget will be affected unless we become smarter. Using the above illustration, some of the ways to increase our income may include;
Converting the liabilities we have into assets. E.g. we can use a motor vehicle as a taxi or for carriage purposes. Buying commodities in bulk to increase the discount rates. Use or sale of unutilized resources such as old furniture, equipment, gadgets and electronics.
In addition, we can use the existing business opportunities to generate more income. Investing more time and to increase our commission is still considerable.
B. Adjusting The Expenses:
This part of the budget is not very complicated as such. On spending, a basic principle in the book The Richest Man in Babylon says that; “confuse not the necessary expenses with thy desires.” This is where we make the most adjustments. These changes are made through;
• Fixed Expenses These expenses must be incurred in every month. In spite of the fact that they are fixed, their cost is still manageable. For instance, one can prefer to prepare meals at home instead of going out for dinner.
• Variable Expenses Variable expenses are more simpler to control. For instance, to reduce the cost of telephone and internet connectivity, try monthly subscriptions or cheaper telecommunication networks. Renewable sources of energy such as solar energy and firewood or charcoal have a great cost advantage.
On paying bills. To avoid fines, we can delay some of them but there is need to make negotiations with those we owe. Concerning the transaction fees, I personally consider comparing the fees charged before I pay.
For instance, instead of withdrawing money from my M-pesa account, I prefer using lipa na M-pesa for my shopping.
Trust you me, all these can help you save a lot.
After all the changes on our income and both fixed and variable expenses, our restructured budget for the month of July would be as follows:
Take note of the changes in both the Total income and Total expenses. After some several adjustment. We can arrive to a conclusion that; • the income is likely to increase in the month of July with about Ksh 20,000. • the expenses are likely to decrease in the month of July with over Ksh 12,000.
The 50-30-20 Rule
If you have gone through the Budgeting Tips For Beginners . You must have come across this rule. Which says that one should divide up their after tax income and spend it as follows; • 50% on obligations or the needs, • 30% on wants or the luxuries and • 20% on savings and Investment.
For those who apply use this rule. Our budgets can be restructured in the following ways.
1. Reducing the 20%; Savings and investment Reducing the saving proportion meant for luxuries in such situations is considerable. Savings should not exceed below 10% of the total earnings. In a worst case scenario, one can use the emergency savings to cater for the basics
Similarly, doing away with or even postponing some investments is still considerable. Those who invest in money market fund and the stock market can opt to invest later on when situations are more favorable.
2. Reducing the 30%; Luxuries The little extra we spend to make our life more enjoyable and luxurious can also be cut off. For instance, instead of paying for Netflix and Viusasa one can opt to use a free antenna TV. Instead of driving for work. Cheaper means such as public transport or even riding a bike can be preferred.
3. Changing the 50%; Obligations
During this pandemic, most of us are likely to spend more than half our income. The only way to reduce these expenses is to downsize our lifestyle. A good example is rental payment. One can consider vacating to a more affordable house.
As I pen off. I’d like to say that, the small changes we make will help us remain financially afloat especially during this pandemic. That’s enough for today. Always remember to stick to your budget!