What does a budget do?

You will need a budget if you want to keep track of your spending and achieve your financial goals.

A budget is a summary of your income and expenses for a specific time period, usually one month.

Budgeting ensures that you have enough money for the things you need and the things that are essential to you since it helps you to make a spending plan for your money. Following a budget or spending plan will also help you stay out of debt or get out of debt if you are already in debt.

The best way to figure out how you can save is to track your spending carefully, and then find the fat. Doing it this way will prevent you from setting unrealistic goals and expectations where your spending is concerned, and it will be possible to be specific about where to cut spending. 

Many of us hear the word budget, and we feel exhausted. Our eyes roll, we tense up and immediately think, ‘it’s a waste of time.’ However, it works! It does require commitment, and initially, it may seem like a tedious, painstaking process, but over time it becomes your way of life; automatic and easy to do. 


Five steps to developing your budget.

While you can budget your money with pen and paper, using a monthly budget spreadsheet or a budgeting tool is easier and more efficient. These will have defined fields for various kinds of income and expenses, as well as built-in formulas to help you figure out your budget surplus or shortfall with minimal effort.


1.Know where your money is going

Before you begin, gather your statements and records of income and expenses such as:

  • M-pesa statement
  • Bank statements
  • SACCO Statement
  • Investment accounts statement
  • Receipts for the month

You want to have access to any information about your income and expenses. One of the keys to the budget-making process is to create a monthly average. The more information you can dig up, the better.


2. Note down your monthly net income

What is your monthly salary? Use your net income, after taxes have been deducted.  If you are self-employed or have additional sources of income, include these as well. Record this total income as a monthly amount.

If you have inconsistent income (for example, from freelancing), and don’t have a monthly salary, we suggest that you use your lowest-earning month in the past 12 months as your starting point when setting up your budget.

3. Make a list of all of your monthly expenses.

Using the list of expenses and statements you gathered in step 1, note down the list of all your expenses. You can use our tracking tool to fill in all the categories. Give all expenses a name. 

Expenses really add up, sometimes more than we realize. If you spend KES 300 for lunch daily on weekdays, this works out to KES 6,000 per month and KES 72,000 a year. If you decided instead to carry lunch from home and invest the 72,000 per year at a rate of 10% per annum for the next 10 years, you would have KES 1,147,494.57 (excluding withholding tax) at the end of the 10 years! 


4. Add up your monthly income and expenses

If your income is higher than your expenses, good stuff!. You can use the extra money to invest, save, pay off debt or towards something else you need. 

If your expenses are greater than your income, you need to reduce spending or increase income.

But the simplest is to reduce your spending, so let’s start there.


5. Identify and cut out the fat

Once you track your spending carefully, then find the fat. Doing it this way will prevent you from setting unrealistic goals and expectations where your spending is concerned, and it will be possible to be specific about where to cut spending. 

This exercise is very personal because what is important to one person may be non-essential to another. Some examples of what you can cut out are cancelling subscriptions that you’re not using, or that are unnecessary, using public transport instead of taxis, negotiating your rent, and so on.


How to Use Your Budget

After you have set up your budget, you must monitor and continue to track your expenses at least weekly. The same budgeting spreadsheet or app used to make your budget can also be used to record your expense and income totals.

Recording what you spend throughout the month will keep you from overspending and help you identify unnecessary expenses or problematic spending patterns. Set a day each week as your money time and take a few minutes to record your expenses, rather than putting it off until the end of the month. 

As you use your budget, keep an eye on how much you have spent. Once you have reached your spending limit in a category, you will either need to stop that type of spending for the month or move money from another category to cover additional expenses.

Your goal is to keep your expenses equal to or lower than your income for the month.

Ultimately, the result of your budget plan will reveal where your money comes from, how much you have, and where it all goes each month.