Top Budgeting Strategies To Optimize Your Funds

Since humans are generally insatiable, our expenses tends to outweigh our available income. How then do you meet all your financial expenses and still have enough money to save or invest?

Money comes and goes but have you ever wondered where your money went barely two weeks into a new month?

The reality of life is that there will always be expenses. And because humans are generally insatiable, our expenses tends to outweigh our available income. How then do you meet all your financial expenses and still have enough money to save or invest?

The answer is budgeting. Budgeting simply refers to the efficient allocation of one’s income and expenses towards attaining financial goals. While we are most probably familiar with this concept at least theoretically, not many people put it to use in their day to day lives.

Not sure how to go about the budgeting process? Here are some of the budgeting tools and strategies that could make the process easier for you.

The 50/30/20 Budget

One very common budgeting strategy as popularized by the book "All Your Worth" by Senator Elizabeth Warren and Ameila Warren Tyagi is the 50/30/20. How it works is that when you earn income/ receive a salary, you split your income into three parts based on these percentages.

According to this rule of thumb, 50% of your income should be spent on living expenses like fixed expenses like electricity, phone charges, and all other such expenses that you absolutely cannot avoid.

The next is 30% and the idea is that 30% of your income should be spent on discretionary items, wants, fun stuff etc. This part is necessary because you don’t want to constrain yourself too much or you will end up breaking your savings to purchase something you truly desire.

The rest of the money, 20%, should then be spent on securing your future. That is, 20% should cover saving and investing for the future.

The Envelope Budget

Another common budgeting tool that can be used is the envelope budget. Imagine you have all your income in cash. Now, the idea is that you split all that cash into multiple envelopes for various purposes.

So if you have N100,000 and 10 things you are supposed to accomplish with it like phone expenses, feeding, investing, clothing etc., write all the cost items on individual envelopes and slot in the budgeted amount required for them.

It’s that simple. While you don’t necessarily have to use envelopes (You can use separate bank accounts or personal finance apps that allow that), the idea is the same: split expenses and split the income that goes with them.

“Pay Yourself First”

This budgetary tool is one of the oldest in the books. If you read traditional finance books like ‘The Richest Man in Babylon’, then you must have seen it. Many people tend to exhaust all their finances by paying everyone else.

They pay their landlords, restaurants, supermarkets, family members, etc. and they exhaust all their funds on these cost centres. The art of paying yourself first involves setting aside a portion of your overall income for yourself and your future.

That is, for saving and investment purposes. After doing so, the rest of the amount can be spread across all other needs. A great advantage of this is that you really can pretend that your income is slightly less than it really is and you can get used to this figure enough for your savings and investment plans to work seamlessly.

The idea of these budgeting tools is to choose what works best for you. However, remember that the end goal is to optimize your funds and ensure that you meet your objectives. This is one very trusted way of attaining financial independence.

Written by Lawretta Egba.