Use a budget to build your life

Budgeting is something we must get right if we want to make a difference in our financial lives. To get this right, we need to make the process of budgeting our friend rather than our foe. PHOTO | FILE

What you need to know:

  • So from now on instead of looking at a budget as something that will restrict your spending, look at it as something that will help you build your factory.
  • Look at your spending like you would those bills. You would handle your expenses so that there would be some profit for you to take home as the business owner.
  • Apart from keeping that money aside to literally build your factory, a budget helps you allocate funds in a way that works for you.

We have been told time and again to stick to a budget. But for many, the word ‘budget’ comes with negative connotations.

It makes us feel restricted and resentful, and sets us up to fail even before we create a budget. In my article last week, one of the questions I asked people to evaluate is whether they spent more than they earn.

A lot of people have since written to me admitting this is one of the areas that they have failed. But then budgeting is something we must get right if we want to make a difference in our financial lives.

To get this right, we need to make the process of budgeting our friend rather than our foe. We need to change how we think about budgeting and maybe rethink our motivation for budgeting.

Why budget? The answer we hear time and again is that we do it so that we can manage our expenses.

Looks like a good enough reason in theory… but it may not have had the effect in your life that you want it to have. Look at is this way: Who do you really pay with your money? Whose factory are you building?

PAYING OTHERS

Most people will get their salary and then pay other people. They will pay the supermarket, utility companies, restaurants, bars, banks, fuel companies, mechanics, salons, clothes shops, etc. Where your salary or income goes is exactly who you are paying.

Are you anywhere in that equation? Are you building your own factory as well or just other people’s factories?

So from now on instead of looking at a budget as something that will restrict your spending, look at it as something that will help you build your factory.

Say you owned a business and had employees: You would pay salaries and bills at the end of the month.

Look at your spending like you would those bills. You would handle your expenses so that there would be some profit for you to take home as the business owner.

A budget will enable you to take home that profit. It is about allocating money for various expenses in a way that will leave something for you to build your factory with.

Just like a business would not be sustainable in the longer term if it were continuously making losses, you will not create wealth if you are making similar losses in your personal budget – essentially, what spending more than you earn does to you.

Investing in your own factory means putting aside money every month for savings and investment.

We are getting into a new year. Many will start off well, writing a budget and sticking to it for a month or two, and then fall off by March. What happens?                  

For one, expenses increase. Most of us will use this as the excuse to give up on keeping a budget. Say fuel prices increase and that affects your monthly spend by Sh5, 000. The default action for most people would then be to save Sh5, 000 less. Wrong move!

You don’t take money away from your factory to build someone else’s. When fuel goes up your electricity provider will pass that increase on to you.

BUYING WHOLESALE

Take from other people’s factories when expenses increase because most of the places you are spending money on will pass on costs to you before they take a dip in profits.

If fuel goes up, cut your entertainment to fuel your car. You can shop more efficiently by buying wholesale.

You can be careful with electricity consumption at home. The message here is cut from someone else’s factory and not your own. You will only know which factory you can cut from if you have been keeping a budget and keeping track of your spending.

Apart from keeping that money aside to literally build your factory, a budget helps you allocate funds in a way that works for you.

Some expenses may have value to you and some may not. I learned a long time ago that my lunch money is a holiday: Sh300 a day on lunch is Sh108, 000 a year, which can finance a holiday full of happy memories. 

When all is said and done it is what you put in your factory that you keep a close eye on. Working with a budget helps you control other expenses to ensure your factory is built up.

Think about it this way as you plan for the New Year and see if it will make a difference.