NamPost Executive: Mbo Luvindao 

In this article on financial education we dive into the crucial world of budgeting. What is it? Who should do it? The importance thereof, and what are some of the best ways to budget? 

Budgeting serves as the foundation for achieving effective personal spending habits and accumulating wealth over a period. As we embark on this journey, we will explore the significance of budgeting, its components, and the methods to craft a successful budget. 

There are certain personal financial discipline principles that one must master to be effective in personal spending, i.e., spending on the right things, to accumulate wealth over time. These disciplines include budgeting, saving, investing, and managing your cash, etc. 

When we receive money in the form of pocket money from our parents or wages and salaries from our employer at the end of the month, it disappears extremely fast. Some people even find themselves asking to borrow taxi money on the day after receiving their salaries! What did we spend the money on? We have nothing to show for it. This often happens because we do not properly plan our expenses, and even when we do, our plans are inaccurate. One must be in control of their personal finances. 

A budget is a plan of action on how you will spend your money. It is a document or statement that shows your expected income, expected expenses, projected savings, and surplus cash. This plan is based on estimates and priorities. 

Step 1. Know your income. 

For working people, a salary is the main source of income. Other sources may include interest income from bank deposits, dividends from shares, rental income, or pocket money. Your expected income is often very straight forward to plan, as most of our salaries remain consistent every month. However, if your salary fluctuates or you are paid commission, it is advisable to consider your average income over the past three months. 

Step 2. Understand your expenses. 

In other words, where does your money go? Expenses range from your mortgage payment, if you own your own house, to your vehicle payments, insurance, groceries/food, savings, taxi money, water, electricity, etc. The list is endless. Some expenses are significant, such as rent, while others are smaller expenses, like lunch money. You must list all your expenses and categorize them according to priority. 

For example, your rent should take precedence over your lunch money, and your taxi fare to work should be a higher priority than money for a movie with your friends. It is normally the small expenses that quickly get out of hand and become difficult to track. Try keeping record of the small things that you spend your money on. One strategy for tracking your expenses involves avoiding cash withdrawals and using your debit card for all transactions. While this may incur some additional bank fees, it will allow you to get a bank statement at the end of the month to check and record all your expenses. 

Now that you have an idea of your income and expenses, it is easy to prepare a personal budget. First, record all your cash inflows, i.e., your income, salary, and any cash you receive from interests, dividends, or any other sources of income. 

Then, add up your expenses for that period (since most people in Namibia are paid monthly or weekly, you may want to add up your expenses for that corresponding period). Thereafter, by deducting your expenses (outflows) from your income (inflows), you will arrive at the net cash or cash surplus figure. 

If your income is more than your expenses, as it should be, you will have a net cash or cash surplus. This is extra money that you can save or spend on something else. However, if your expenses are more than your income, you have a cash deficit, meaning you are spending more money than you have. You may have to borrow money from a friend or family during the month. 

The objective should be to ensure
that: 

1. You have a goal for how much money you want to save in a year. This goal may be specific, such as saving for a laptop or it may be a general saving goal for emergencies, or other purposes. We will discuss savings and investment in upcoming articles. 

2. Assess your current spending patterns and set goals that take into account your long-term objectives. Reduce any unnecessary spending and increase the amount you save. 

3. Lastly, track all your monthly spendings to make sure they align with your budget. 

Tip to remember: 

Keep it simple, your budget should not be complicated.