There is no doubt that Nigerians are struggling to stay on budget in this tough time. From limited earnings to high inflation rate, keeping to budget is no longer easy.
Nigeria headline inflation stands at 20.52 percent a long time high as reported by the National Bureau of Statistics (NBS). Prices of food, housing, transport and diesel have also risen very high.
“I have had to reduce my money allocation for things like clothing, data and hangouts to accommodate an increase in the price of food, transport and fuel, yet I still struggle to stay on budget,” Ibrahim Olajide, a banker at one of Nigeria’s leading banks.
Tsh Oxenreider, author of Organized simplicity defines budgeting as “telling your money where to go.” Budgeting starts with tracking expenses, eliminating debt, and once the budget is balanced, building an emergency fund.
How to Budget
Kalu Aja, financial counsellor said that the best rule you can give yourself is to actually have a budget because a lot of people don’t do it because it’s hard to maintain. He mentioned that the first step is to put it into writing. “So the very first thing is to write out what your budget is and to actually do it,” Aja said.
Morgan Housel, author of psychology of money, said, “Do not aim to be coldly rational when making financial decisions, aim to be pretty reasonable. He said being reasonable is more realistic and you have a better chance of sticking with it for the long run.
Aja said that, for him, the budget is essentially four columns: Active income, passive income, non-discretionary and discretionary.
The first column, which is your active income, is income that you make from work. The second column is passive income, that is the income you get from the likes of dividends from shares, from rent of a building you own, etc.
The third column is for non- discretionary expenses, these are expenses that you must make whether you have money or not for instance eating, rent, school fees, gas, transport, savings, etc.
The last column will be discretionary expenses which are expenses you can make at your convenience like DSTV, holiday.
“The budget rule is simple, you want to make sure that your income which is your active and passive income can pay for your non-discretionary expenses without you borrowing,” Aja said.
Bola Oyebayo, a communication expert said she had to cut back on her grocery budget and only buy the things she needs.
“My grocery budget is now N13,000, as I’ve removed things like cereals and cookies and focused on the important things,” she said
Aja explained that If you can’t pay for your non-discretionary income that means you need a new job or cut your non-discretionary expenses.
Budgeting in time of uncertainties
It is very difficult to budget in times of uncertainty because prices keep going up and so will your budget.
“This is why you should have a budget so as to review it the next month, reduce spending on non-essentials and put it into essentials. So, the Budget allows you to plan out a review, so you can see what to cut out or what not too to meet my non-discretionary expense,” Aja said.
A trick is when you pay for your non-discretionary ahead of time like food, See if you can do this for anything you consider non-discretionary expense you can deal with the uncertainty in prices the disadvantage is that it takes away a lot of your cash but if you look at the earnings you will make if your money was in the bank and the savings you will make if you paid ahead then you compare both of them a 7percent interest on savings or a 19percent inflation rate .
For non-discretionary expenses look for cheaper alternatives to reduce cost, like food, what are you eating? What are substitutes for this food? Is food eating out? You can cook instead. For transportation, instead of driving your car and buying expensive fuel, you can carpool with friends and share fuel costs.
So, your necessities will always happen, your job is to find innovative substitutes, so you can pay for them without killing your cash earnings, for example getting substitutes for certain food items, buying your food in bulk, buying it in villages in bulk that’s how you want to adjust at that budget because it’s easier to cut expenses than get a salary increase.