To many of us, our take-home pay is often all that we have to pay for rent, food, transportation, health care, housekeeping etc. That’s a lot to cover especially if you have a limited amount. If you have take-home pay of, say, ghc2,000 a month, how can you pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.
But, with the help of a budget, things can be a lot easier.
A budget is a plan or a guide for spending the money you have. It’s not magic, but it represents more financial freedom and a life with much less stress.
Try a simple budgeting plan
A simple budgeting plan is all you need to manage how you spend your money. One of the most popular budgeting plans is the 50/30/20 budgeting plan. By this plan, you spend roughly 50% of your monthly take-home-pay on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment. Over the long term, if you follow this plan, it will help you to manage debt, leave room to indulge occasionally, have some savings to pay irregular or unexpected expenses and even retire comfortably.
- Allow up to 50% of your income for needs/necessities
50% of your take-home-pay should be allocated to needs such as:
- Groceries
- Rent
- Basic utilities
- Transportation
- Insurance
- Minimum loan payments. (Anything beyond the minimum goes into the savings and debt repayment category.)
- Child care or other expenses you need so you can work.
If the total of your absolute essentials is more than the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you’ll have to adjust your spending.
Even if your necessities cost less than 50% of your take home income, revisiting these expenses occasionally is smart. You may find a better mobile phone plan, a less expensive car insurance etc. That leaves you more money for your wants and other expenses.
- Leave 30% of your income for wants
Separating wants from needs can be difficult. In general, needs are essential for you to live and work. Typical wants include dinners out, gifts, holiday travel and entertainment. It’s not always easy to decide. Is a gym membership a want or a need? How about organic groceries? Decisions vary from person to person. If you’re eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn’t be so tight that you can never buy anything just for fun. - Commit 20% of your income to savings and debt repayment
Set aside 20% of your take home pay for unexpected expenses, saved for the future and to pay off debt. Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.