How to Budget Successfully

She said that there is nothing called “middle class” especially in Kenya. That it is either you are poor or rich, but nothing like being in the middle. That what is called middle class in Kenya is just glorified ‘hands to mouth’! To be sincere I felt offended and wanted to prove her wrong.

I really love the subject of budgeting, despite the fact that I have never perfected the art, which is a true reflection that life is about learning. Wagaki anchored her explanations that a lot of people in the so called middle class do not budget and contribute to the majority in 78% of Kenyans who don’t. That only 22% take their time to appropriate resources to particular votes in life.

Being an accountant, Wagaki took me through basic budgeting parameters. That 10% of your earning should go to saving. A lot of people want to save from the remnants of their spending. This is where some of us get it wrong and end up never saving at all. The saving component could be into a specific account, an insurance savings plan or maybe accumulated savings through a SACCO or Chama.

Then 10% goes to tithe. For many this could be a new phenomenon. Whatever deity we believe in does not matter, but setting aside our income for good courses like church, mosque development, temple commitments, community uplifts or social responsibility is a marvel that none of us should miss. Wagaki quoted the holy book to cement this, that a good man gives to the poor and leaves wealth to the fourth generation.

Another 10% goes to wear and tear. I found this hilarious. Losing a watch or phone to muggers or being arrested by corrupt policemen who harass you and end up soliciting a bribe to avoid spending a weekend in a smelly police cell is an example of wear. I picked costs on emergencies due to cars or other households more reasonable. And this, no one avoids at all.

Wagaki delved deeper to allude that the other 10% of our income should go directly to investment. Unfortunately a lot of people accumulate saving for a longer time before converting that to investments. It is not all the time that this should be the case. For example the Nairobi stock market allows one to buy a minimum of hundred shares, which in most cases is a very small amount of money. Many of us believe that investments must be in huge amounts, forgetting that Rome was not build in one day.

Lastly, the remaining 60% is what we should live on. Surprisingly the largest number of people spends over 90% of their income in running expenses and then squeeze in saving, investment and tears and wear into the 10%. This is why when emergencies strike, it is hard to manage them. This is also the kind that works to push through the end of month always eagerly waiting for the next paycheck. If you budget well, it is possible to live on savings for six months even after losing the main source of income.

For many who do not budget their income, here are some wise words. You will definitely need to appreciate that budgeting is real, monetary but purpose driven. It starts with the small things that matter to you and your family, but ends up helping you put every coin into the right use. So, what are you waiting for? Start this month and see how this works.