Dynamics of Budgeting (Part 2)

From our last post on Dynamics of Budgeting Part 1, we were able to lay the foundation into budgeting for recap, please check  (Here), we will be moving a step ahead, and I will love that we go a bit practical with either a notepad and pen for you do the write up with your electronic gadgets.

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I) Now let us identify all your source of income:

v  Monthly Salary.

v  Sales Profit.

v  Monthly Upkeep from big brother and sisters.

v  Other income.

II) Pen down all Expenses

 Fixed Expenses (This are necessary expenses that stay unchanged from month to month)

v  Tithe.

v  Rent .

v  Transport .

v  Call cards (Phone Bills) ** prepaid customers with defined credit limit.

v  Monthly Toiletries.

v  Cable TV subscriptions.

v  Etc.

Variable Expenses (this are necessary expenses that may vary from month to month)

v  New Hair do .

v  Designer shoes and bags.

v  Movies .

v  Call cards (Phone Bills) ** if you buy at random (to be discussed latter as this is a leaking point for a lot of people’s finances.)

v  Etc.

Wants (this are nonessential expenses)

v  The latest Phones.

v  Eating Out, going to the beach.

v  Etc.

III) What we need to do is to add all our Income line together and subtract all the expenses, if you have excess (That is sure a savings or investment coin) and if you do not have anything less you have to cut down on some things fast as you are either living within your income or above it if you have deficits.

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Let us consider a practical example:

We will use a hypothetical example of a young industrious lady, let us call her Babat who works a regular job with a monthly salary and also sells cloths and cosmetics on Social Media (Facebook, Twitter, etc.)  And also have brothers and sisters because she is the last child (Note your own story may not be in this line as most of us only have single income line, let’s look at are income.

Category	Income	Amount
	a) Monthly Salary (after tax )	N150, 000.00
	b) Sales Profit (Average)	N25, 000.00
	c) Monthly Upkeep from big brother and sisters. (Average )	N20, 000.00
	d) Other income	N5, 000.00
A	Total Inflows:	N 200, 000.00
	Fixed Expenses	Amount
	Rent (Shares a N300, 000.00,flat with a friend she pays N 150,000.00/year which comes to 12, 500.00 a month)	N12, 500.00
	Tithe	N20, 000.00
	Transport (Fueling of Car for the month )	N 15,000.00
	Data Charge (Phone Bills)	N3, 500.00
	Monthly Toiletries	N 20,000.00
	Cable TV subscription	N 5,000.00
B	Total Fixed Expense:	N 76,000.00
	Variable Expenses	Amount
	New Hairdo Human hair and fixing	N 40, 000.00
	Call cards (Phone Bills)	N 10, 000.00
	Generator Fuel	N 10, 000.00
	Peplum Dress	N 5, 000.00
	Cakes/Chocolates etc.	N 5,000.00
C	Total Variable Expense:	N 70,000.00
	Wants Expenses	Amount
	Latest Phone	N 165, 000.00
D	Total Want Expenses	N 165, 000.00
	Income-Expenses (A-B-C-D)	-111,000.00

From Madam Babat’s Budget we can deduce that she has a deficit (-111,000.00) and it is not strange as this is often the case for first time ‘Budgeters’.  What can be done in this type of scenario is to either increase your Income line or reduce your Expenditure and its best to reduce your Expenditure. This is an obvious case of living Above your Income   

The simplest way to achieve this is to put a peg on our Want Expense and see what the bottom line comes to. On the other hand, we can also do both (Increase Income and also reduces Expense) so as to achieve our target (Financial freedom).

 Remember this is just a hypothetical example, try your hands on yours and if you need help let’s talk  your confidentiality is key to me.

**Excel is a good tool that can be used for budgeting, you can also get good personal finance budgeting Apps