Top 5 Techniques For Personal Budgeting and Saving Money

Last month, the company that I work for paid us our December salary on the 20th so that we can enjoy the holidays with some cash at our hand. Fast forward today at lunch, me and my collogues were taking about how long it has been since the last time we got a pay check --- exactly 28 days, and most of us our pockets are empty. This is an unusual situation but it doesn't only concerns people working for a salary; for those who own businesses there are cash-boom and cash-dry periods as well. In any case, those are the times that a cautious saver might fall back to the piggy bank, your saving accounts, or even better get money from your second or third hustle.

Whatever you do, you need to careful plan ahead and to have a finance discipline  that is achieved by but a few people yet it's easy for everyone to apply. It is an essential skill in life not taught in schools, fortunately you can learn from practice and from experiences others. These 5 techniques I'm sharing below will help to guide you and you can build on them to start your personal finance journey. . However, they should be contextualized and adjusted to your own situation since there is no one-size-fits-all standards for managing your finances, whether it’s your savings, budget, retirement planning, or anything else. 

1. Differentiate your wants from your needs

The sad truth is - you can't have it all, and trying to do so it's fairytale and an endeavor bound to fail.

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Knowing that, start by identifying what you needs; for example, food, clothing, shelter, transportation, healthcare, etc., which are necessary for your survival. 

On the other hand, wants are things you would want to have but don’t need for survival like partying, jewelries,  etc. By separating your needs and wants, you can make informed spending decisions focusing only on those you need. You can use your funds for wants when your necessities have been addressed but never exceed 30% of your income on them. And never ever take a loan for your wants.

2. Save For Specific Goals Now

There two undisputable secrets to saving enough and regularly: 

1. Have a specific goal: A specific goal means you know the amount of money you want to save and how long it should take you
2. Save before spending: Whether you work for a salary or business, you should save before making any other expense --- before even spending on your needs. 

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Saving should be uncompromised. However, it should align with your income as we'll see in the next points below. For more on how much you can save check the 50/20/30 Budgeting Rule that suggest you should save 20% of your monthly income right away. You can save even more by applying the 60-40 Budgeting Rule where 30% goes to saving. It's never too late to start planning your dream house, for your retirement, or anything else you want to save for; so start now.  

3. Do Monthly Budgeting

This must be the most importance of your Algebra class. Do the math and do it every month, regardless to whether the income and expenses changed or not. Money comes, and money goes from your hands every month. However, rather than neglecting your money and leaving it to chance, doing a little math can help you control where it's coming from and where it's going. With little personal budget calculations, you can determine ways to achieve your short- and long-term financial goals. Start with calculating your net worth—the difference between the value of your possessions and debt. 

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It is no secret that in today's world, your life depends on your income; so don't be lazy. Pick up that not notebook, pen, and calculator. Another advice to those who are comfortable with technology, it doesn't hurt to have spreadsheet in Excel or Google Sheet where you go over your money once a month. 

Since you are doing the math anyway, please check if you are not spending more money just because you have earned a little extra this month. Haven't you ever wondered why after a salary increase you're still struggling to cover the whole month bills? The answer is what is called lifestyle inflation which is the tendency people have to spend more as they earn more. So make sure that when you earn more in your business or get a salary increase, you first focus on increasing savings and then ONLY the expenses on your NEEDS (for example, it's okay to take your child to a better school rather than switching to a brand new phone).

4. Invest 

The goal of tracking spending is to cut down on spending not required and instead invest it into money-making instruments. The days of waiting to have a big capital to invest are long gone. The myth that investment should be starting a business is now debunked. There are many investment tools that you can benefit from without having a lot of money nor quitting your job. 

For instance, in Rwanda, MTN provides Mokash where you can deposit the recurring cash and earn small but very important interests; almost all banks have saving accounts which provides 6-8% interest rates, and there are other capital investments like BK's Aguka Fund which also provide interests on your funds.

And if you want to start a small business - check out our recommendations of the sectors in Rwanda where you can invest. And if you're not reading from Rwanda I'm sure with a little online research you can find a suitable opportunities to invest in you area. The key is to be realistic and manage your expectations so as to start small and learn what works for you

5. Have an Emergency Fund

Shit happens! One or more people in your household will fall sick not only require you to pay for medical bills; but in that time s/he will not be contributing to the household income. Even if it's a child who is sick there is a cost to the long-term income generation as s/he is not attending school as required. So, set aside money for unforeseen circumstances. It can help you pay for items you would not generally include in your budget, like car tickets, medical bills, etc. 

Most importantly the emergency fund will sustain you in case of employment or business loss. The general recommendation is that you save nine to twelve months’ worth of living costs with an emergency fund. Ideally, you should be able to live at your currently lifestyle for six months without income while you're figuring out your next moves. You must take loan at attractive personal loan interest rates only when your emergency fund is fully utilized.

Conclusion

Personal finance and budgeting rules are effective strategies you must follow for your financial stability and help your to build a habit of making better financial decisions. Your overall financial health depends on the combinations of the spending, saving, and investing decisions you make on a day to day basis. So if there is one thing you should keep from this article should be that every little bit adds up; so count every penny and know where it comes from and where it goes.