Today, we are going to explore the concept of budgeting. We’ll study four types of budgeting and how they work, focusing on one type in particular.

A budget is a plan you write down to decide how you will spend your money each month. The financial transactions you engage in every month should be governed by your budget. As I mentioned in a previous talk, to be financially healthy, you must follow a budget.

Your budget should determine how you spend your money. Knowing how well you are managing your monthly earnings is crucial. As the saying goes, a budget is telling your money where to go instead of wondering where it went.

Focusing on personal finance, let’s consider that most of us rely primarily on a salary. Some may also have business income, but today we’ll focus on those earning a salary.

Here are four personal budgeting techniques you can choose from based on what resonates with you:

1. Zero-Based Budget:
   • This starts with the assumption that all expense items are zero and must be rebuilt from scratch. Any expense added must be thoroughly vetted and justified. This tight budgeting strategy aims to avoid any unnecessary expenditures. It ensures you have a plan for each shilling, preventing impulse purchases.
2. Envelope System Budget:
   • Similar to the zero-based budget, but with a key difference: cash usage. You allocate cash to labeled envelopes for each spending category. For example, use the grocery envelope for grocery shopping. Avoid borrowing from other envelopes to prevent running out of cash before month-end.
3. Pay Yourself First Budget:
   • Ideal for those struggling to save. Before spending your salary, allocate a portion to savings. For instance, if you earn 50,000, save 10% (5,000) first. This method ensures that your savings account is the first “bill” you pay each month, focusing on building savings and investments.
4. 50-30-20 Budget Rule:
   • A practical and common approach. Allocate 50% of your budget to essential expenses, 30% to discretionary expenses, and 20% to savings and debt payments. For example, with a 100,000 after-tax income, allocate 50,000 to needs, 30,000 to wants, and 20,000 to savings. This method helps you identify necessary expenses and allows for adjustments as needed.

Now, I will share some illustrative budgets for different earnings for your future reference. There are various budgeting strategies, and you can combine one or more methods to suit your needs. The 50-30-20 rule is practical and common, but feel free to combine it with other techniques like the envelope system.

The best budgeting method will change over time based on your financial goals. Thank you for listening to my budget talk. I hope you have learned something valuable.

Tamara’s Financial Planning and Consultancy: From scratch to the top, we’re moving into millions. Thank you and God bless you.