Young People - Budget (Part 4)

What is a budget?

Budget is a document (written down) that contains all the expected income, the projected expenditures and investments/savings of an individual, organization, or even government.

Here is a budget of typical youth earning a salary of sh. 30,000/- p.m.

ITEM	AMOUNT
Rent	7,500/-
Bills (water, Elec, etc)	2,500/-
Shopping	3,500/-
Transport	4,500/-
Pocket Money	6,000/-
Total expenditure	24,000/-(80%)
Total Income	30,000/-
“Surplus”(Savings)	6,000/-(20%)

Is this budget good enough?

Why do we need a budget?

There are a lot of reasons an individual or an organization would need a budget:

1. Planning for the current and future economic goals.
   Budget can help an individual make realistic goals for the future. Budget will give an individual an accurate idea of how much one can actually afford at the moment and in the future.
2. To avoid hitting bankruptcy(Overspending)
   Budget protects an individual from “economic-devil” of overspending and hence avoiding one from incurring heavy debts that might lead to bankruptcy.
3. To have control over the money.
   With the budget in place one will always have to counter-check the details in the budget before making any spending. The best thing can happen to an individual when it comes to economic matters is to have control over money.
4. Better emergency response
   With a working budget one will be in a position to respond well when it comes to emergencies such as sickness, accidents, loss of jobs among others.
5. Debts and Credits Tracker.
   With a budget one is in a position to know the status of debts and credits.

Parts of a budget

A good budget should contain at least six major sections;

1. Income section.
   This gives an account of all the income that is received or expected(one is sure) within that period of budget.
2. Debt section
   This gives the account of debt you are willing to settle within that period of the budget.
3. Credit Section
   Amount expected to be paid back to you from the debtors within that period of the budget.
4. Expenditure section
   This covers the day-to-day expenditure, monthly bills, shopping expenses among others. This section should be well elaborated on each item name and cost. This is a crucial section that most individuals mess.
5. Savings/Investments section
   This is a section where the amount/percentage to be saved/invested is mention. This section take into consideration all the above sections.
6. Emergency section
   This section covers the insurances and other forms of emergencies savings that should enable an individual respond well when need arises.

How to budget

Total Income(100%) = Income + Credit

Total Expenditure(<70%) = Expenditure(65%) + Debt (5%)

Total Savings (>30%) = Savings/investments(>15%) + Emergency savings(at-least 15%)

Conclusion

One must not use more than 70% of the income to sustain the current lifestyle because it will have a big impact in the future.

Total Income(100%) =Total Expenditure(<70%) + Total Savings (>30%)