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*Five Tips For Developing And Managing A Budget*

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Oluwabunmi Adejumo a Nigerian graduate of Economics has listed five tips for developing and managing a budget, “even in tough economic times” as the new year approaches.

Adejumo said budgeting is the most effective method to monitor income and expenditure and also offers more opportunities to save money, reduce debts and live a comfortable life.

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It can even improve one’s mental health, added Adejumo. We present below the list of tips that was first published by The Conversation.

*1. Understand the broader economic conditions*

Adejumo says it is imperative to understand and be updated on the realities of their country’s economic landscape. Added Adejumo:

> You don’t have to be a professional economist, but keep an eye on new developments like free business registration, small business development funds and printing of new money notes. What is the current exchange rate? What’s the political landscape and what international factors, like the price of crude oil, are at play? You should also watch the inflation rate and have a sense of unemployment trends. This economic awareness will prepare you to draft your own budget and you’ll have a sense of when external factors mean it’s time to revisit your plans.

*2. Review your income sources*

> Some important questions you should ask about your income – and how you might budget with it – include:

> • What is my current income?
• What do I use my income for?
• Am I able to save, given my current income?
• What proportion of my income do I save and what proportion do I spend?
• Do I have the capacity to earn more than this?
• How can I improve my income?

> Your answers can help you to identify gaps or untapped potential. Those with irregular or unpredictable income should factor in the element of time gap in their income, for effective budgeting. A time gap is when they are not earning income. Make allowance in their budgets for uncertainties like health issues, social engagements, inflation, unemployment, recession and price shocks.

*3. Appraise your expenses*

> There are fixed expenses which recur within a short period: housing, food, transport, medical costs, electricity, utilities, toiletries and clothing. Variable expenses are more long-term and irregular, such as investment in property or interest-yielding assets, and the purchase of machinery. In reviewing our expenses, we can consider issues such as:

> • What is the proportion of consumption-savings ratio from my income? This is how much do I spend compared to how much I save.
• What are my regular expenses?
• What are my fixed, capital or investment expenses?
• What are my extraordinary expenses that need modification?
• Have there been an emergency or extraordinary expenses?

> Answers to the questions can lead to an optimal, efficient reallocation of available resources.

*4. Stabilise your finances through savings*

> Savings have been described as a financial stabiliser, given their potential to cater for urgent needs and create opportunities for investments.

> Of course, savings have more value when they grow faster than the rate of inflation. Inflation erodes the value of savings. Therefore, it is advisable to improve the value of savings through investments in interest-yielding assets such as stocks, shares, bonds, microfinance and production.

> That’s not to say it’s always easy to save. Many income earners spend as they go, not seeing savings as part of their budgets. Harsh economic realities can also make it difficult – sometimes seemingly impossible – to save. But it’s not impossible: savings can be made in small amounts, through a daily, weekly or monthly contribution to collections, cooperative schemes or microfinance affiliations.

*5. Run a flexible budget*

> Once your budget is created, remember that it’s not set in stone. It should be flexible if anything changes in your life. For instance, an amount saved to buy a car can be invested in a promising venture buying shares through public offerings or private placements in multinational organisations. Also, health emergencies or career advancement programmes can require taking some money out of our savings.

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