In early 2020 the world was shocked with the spread of COVID-19 and a planet wide lockdown. This caused many changes in people’s lives: some people lost their jobs, some gained new careers and some people worked the same job, earned the same pay but found that they somehow had more money to spend. They weren’t living from paycheck to paycheck as usual.

What happened?

The IMF confirmed in 2021 that during the pandemic global trends in savings changed. Household savings in particular experienced a surge in many countries and this was attributed to decreased consumption opportunities. These consumption opportunities include dining out, panic buying and impulse buying. When people were caught off from the mental psychology of the market they suddenly found that their income was enough.

Most people live from Paycheck to paycheck because they hold an established belief that they don’t earn enough. While that may many times be true it isn’t always the case. Regardless there are proven actionable steps to help you stop living in constant financial tightness. These actionable steps all fall under one mundane but life-changing advice; Budgeting.

But how do you budget effectively?

There are a few things to understand about money that put budgeting in a clearer perspective:

1. Chaos Eats Money

Disorganization is the fastest way to lose your money trail. Have you ever stared at your bank balance wondering if you have been robbed? But when you scroll through your debit and credit alerts you realize you are your own thief. Spending without a budget is like spending without permission from your intentions. When money is not organized you are more likely to overspend on your needs and throw money at every want. 

2. You Cannot Manage Money In A Rearview Mirror

This means that money should be budgeted before it hits the bank account. Many people wait till the money is in their hands and till after they have spent some of it on certain cravings before budgeting the rest. This keeps the cycle of financial tightness rolling. The simple truth is if you don’t determine what the money is for before it is accessible to you, you are more likely to spend amiss.

3. Every Naira Must Have A Specific Purpose

Money is very slippery and therefore budgeting cannot be half-assed. Your budget should follow a descending order of priorities. Budget on everything from bills to leisure to surprises, that way your money trail is easier to follow and understand. When budgeting, be honest with yourself. If there are liabilities that you are likely to buy, set money aside for them rather than pretending you will resist those habits. You may eventually get better with your priority list but in the initial stages write your priorities as they are and not how they ought to be.

HOW TO BUDGET EFFECTIVELY

Step 1

Make A Priority List:

The inverted pyramid method is a good way to make your priority list. The method involves listing your monthly expenses from the largest to the smallest. After listing out your priorities, rearrange them into the order of priorities that best suits you. Then begin assigning portions of your salary to each item on the list until every naira is accounted for.

Step 2

Get A Bank Statement:

Some level of self awareness is needed to stick to a budget plan and that is where a bank statement comes in. A bank statement reveals the secret places you are bleeding money unnecessarily. Knowing these triggers helps you take proactive measures to avoid going over budget. For example there’s a street on my way home that sells certain snacks I find irresistible, therefore I take a different route home on days I have no budget for snacks.

Step 3

Slightly Overfund Each Item On Your Budget List:

It’s normal to assume you don’t spend so much on each priority but the numbers don’t lie. Rather than under funding, a slight overfunding gives you some freedom within your limits. This step is especially important as a beginner as it helps make a sustainable budget which is easier to stick to.

Step 4

Use Cash Envelopes:

Cash envelopes make sure you stay disciplined with your money. Withdraw your expenses for the month and separate them into cash envelopes. Label each envelope with what the money is for and how much it contains. Only take the cash envelopes you need to spend when leaving the house. Never leave the house with more money than you need, there should already be included in each envelope a slight overfunding for surprises and emergencies.

Step 5

Make Smart Money Moves:

 For bills that are paid in yearly subscriptions like rent, water or service charge using Bravewood Prime could give you a percentage of your money back. Bravewood Prime has a 16% interest rate per annum and allows you to enjoy compound interest.

For Example:

Ona’s rent is 600k per annum which means she has to put away 50k from her monthly salary in order to renew her rent. Rather than put her monthly rent payment in a savings account she puts it in a Bravewood Prime account. At the end of the year instead of having 600k in her account she has 650k and this extra money puts her ahead of the bills for the coming year. With Bravewood investment packages smart money moves are surplus.

Some other great budgeting advice that seem small but are effective are:

a. Never go grocery shopping without a list

b. Never go grocery shopping when hungry

c. Use the 24-hour rule(wait 24 hours before buying) for non-essential purchases over 1500, you may find that you don’t really want it.

d. Delete those shopping apps and food delivery apps. You can always download them if you really need them.

e .If your cash envelopes aren’t empty when the day is over put it in a piggy bank.

f. If you can’t buy it twice, you probably shouldn’t buy it at all.

g. If you can, set up automatic transfers to move a significant amount to savings every time you get paid. It’s easier to adjust to never seeing the money than to actively choose to save it.

Just like the family’s that experienced the savings surge during the pandemic, sticking to a well detailed and organized budget is going to make you feel like you got a raise. The structure of a budget will give you a free mind and leave you worry free about your finances. Though it may feel restrictive initially, the benefits you’ll reap out of this constant practice is well worth it. 

Bravewood provides Nigerian professionals with low-risk, high-return investment products, licensed by the Central Bank of Nigeria.