Most people associate a budget with a restricted lifestyle, no fun, and generally figures which most people have an aversion for.
Sadly though, for your personal finances to make sense, you’ve got to have a plan of how you will spend your money once it’s earned. This doesn’t have to be some fancy Excel or Quickbooks document, it can be in a notebook, but everyone must have a budget.
A budget is born of your expense tracking results, adjusted accordingly for items we discussed in Personal Finance 101.
Most people wait till they’re at a certain income level so they start budgeting, well, it’s never too late, but the earlier you start, the better it is for you.
One doesn’t have to earn alot to have a budget or to save. It’s key to learn to adjust your lifestyle when you have little, because you will never have enough to cover your lifestyle. For example, when I got my job in 2006, my starting take home was Kshs 31,000, I lived in a rented house in a fairly good neighbourhood (it was very cosy, read small), managed to save, and give too. If you get used to spending it all, you will never learn to save.
Savings
How much should one save?
Experts recommend a basic minimum of 10%. If you’re starting out, this is quite alright, but in my opinion, anyone taking home over Kshs 80,000 should be saving at least 45% of their income if they’re living in Nairobi. Tall order? I think not. It’s all about prioritising what’s important, what’s not, what can be consumed today, and what to consume tomorrow.
The earlier you save the better. Sample this (quick rough calculation):
Assuming one got a job at 22 years old, was earning Kshs 35,000 bob per month, of which she saved Kshs 3,500, in a scheme that was growing at 10% per year (we’ll discuss this later).
Assume, that her salary grew by 10% every year, and with this, she increased her savings by a similar percentage, so if she was saving Kshs 3,500 this year, it increased to Kshs 3,850 the following year, as her salary increased to Kshs 38,500. This is conservative as most of us double our salaries within the first or second years.
If this lady keeps at this, saving 10% of her salary into this savings scheme, and decides to cash in at 45 years, she will have Kshs 8.6Million, at 55 years, she will have Kshs 32.19 Million in savings.
The key is to start as early as you possibly can, because if you started to save at 30, you would need to start at saving about Kshs 10,000 per month and growing, to have Kshs 32.19 Million in savings at 55.
The earlier you start, the better, but then again, it’s never too late to get your finances in order.
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Can I just hire you to handle my financial nitty-gritties for me?
Do you accept Monopoly money?
Serious question; saving vs investing. Which is more prudent?
The power of compounding……beautiful no?
@Mo, I’ll take Monopoly money, and teach you how to handle your personal finance nitty gritties
To be honest, it’s compulsory to have a handle on some of these principles, even if you hire someone to do it, cos if you don’t, they’ll rob you blind. Saving Vs Investing. They’re not mutually exclusive IMO. See the next post (dedicated to you)
@Mwangi, indeed! Compounding is almost miraculous!
Hmmm….. Wing it does not seem to be a prudent modus operandi…
Mo, may I butt in on your classes, thats if Kellie will have me!! I pay good monopoly money as well
Can’t wait for the save versus invest post.
Hi Ms Kellie,
Thank you for these posts on personal finances. I could do better on this too.
I am looking forward to the next post especially on the Savings Vs Investing not being mutually exclusive.
Thanks! Looking forward to it. I’m utterly hopeless as it is.
Regardless of whether I get X or 2X in a month, I always find a way of using it ALL up.
Coolness. Never understood how to calculate compound interest from my math teacher. I have tried getting the interest rates offered by banks, do you have any idea?
Now let me try to calculate what 5k a month will have by the time I am 40……erm, need to google formula first.
Heh! Even me I want the saving vs investing class.
I think I am an expert on the B word….if I may say so myself. I never buy anything for myself, see how good I am? I save all my money.
@Kaboro, err…yeah, winging it might not be the best idea! lol
@Loco won’t shut this window till that post is up!
@KR thanks alot!
@Mo, how about this, you pay me X every month out of your pay, I keep it for you, that way, its part of spending. You have to save first, consider it an expense too.
@Kafai well, if your savings are expected to grow at a certain rate, you have to use the Future Value Interest Factor of an Annuity (I’m sure I lost you) to calculate how much you would make. I however have a simple excel template I can share, if you need it, just DM me.
@Mama, post coming up. You’re better than me on the saving everything
YES, i agree everyone needs a budget.It mustn’t be super fancy but can be done on the back of a piece of paper BUT you need to know where your money is GOING to and sometimes where it will come from.
TRUE- its possible to save up to and more than 45% of your salary if it is more than Ksh 80k per month in nbi.