Dr Mercy Uwakwe, Founder Mercy Wave Conglomerate shares insightful thoughts on how not to stay broke during this lockdown, specifically budgeting rightly in a way that you don’t loose all your savings.
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Every great financial plan starts with a sound budget. We will look at some steps in setting up a realistic budget that gets you where you want to go and throw more light on the 50-30-20 budget rule.. The steps include:
You need to know how much you spend monthly.Consult your bank statements, receipts to find out how much you send on average in a month.
PS: don’t forget to add unexpected expenses
DETERMINE YOUR INCOME:
It’s time to determine your actual income; make sure to add income from other streams outside your salary.
SET SAVINGS AND DEBT GOALS:
To know your saving or debt goal, you have to subtract your monthly expenses from your income. If you’re making more money than you’re spending, use the amount for savings and to pay off debt(if any).But if you are not, it’s time to cut down your expenses so you have something to save and don’t go further into debt.
KEEP TRACK PROGRESS:
Aim at sticking to your budget most of the time and you are bound to reach your financial goal.
Here’s a money fact that’ll shock you.
Of all the currency in the world, roughly 8% of it is actual physical money. The other 92% of money only exists digitally, which makes a lot of sense considering how often people shop online or buy using a credit card.
This brings us to financial tips during a Pandemic.
At times like this, it is necessary for people to take a hard look at their expenses, figure out what they can cut and then divert that money to savings. You could also consider shifting some of your long-term savings into short-term savings. That could include lowering the amount of money you might be putting into retirement savings or a college savings account and putting that into emergency savings. You can switch back once you are financially stable again.
The emergency budget focuses only on essentials and leaves out most or all discretionary spending. That means no trips, no gifts, no little extras at the store that aren’t absolutely necessary. Stay on this budget until you have at least three months of net income set aside for emergencies.
AVOID HIGH COSTS
If things do get rough, avoid high-cost alternatives to get cash.
That means no running up high-interest credit card debt, using payday loans with astronomical interest rates or withdrawing retirement funds. These can often leave you in a worse position than you started thanks to fees, interest and more.
Still on Budgeting
The 50/30/20 budget rules says that 50% of your after-tax income should be spent on “needs,” 30% should go to “wants,” and 20% should go to savings and debt reduction.The key is to separate your wants from your needs so that you’re more self-aware of how you’re spending money.
One of the toughest aspects of budgeting is separating wants from needs. Many people mistakenly categorize certain items as “needs” because they can’t imagine life without them. But when push comes to shove, many of our needs are actually wants. After all, budgeting, at its very core, is not about crunching numbers. Budgeting is the art of aligning your spending with your values.
NEEDS VS WANT
I think it’s easier to know what we consider a need. You need a place to live, clothes to wear, and enough food and water to maintain your health—these are the elemental things that you need to survive. They’re indispensable.
Fact is, we make many of our purchasing decisions subjectively rather than objectively.
Does eating an expensive meal at a high-end restaurant qualify as a need? Or what about clothes? Do you have to stick with generic sneakers or can you splurge on a pair of expensive Yeezy Boost shoes by Adidas? Ultimately, it’s all about perspective and how you choose to manage your money.
A NEED is generally referred to as something that is extremely necessary for a person to survive. If a need is not met, it would lead to the onset of disease, the inability to function effectively and efficiently in society, and even death.
Needs are categorized into two groups. There are the objective or physical needs, and the subjective needs.
Objective needs are those that are met through tangible things, or things that could be measured. Examples of these include food, water, shelter and even air.
On the other hand, subjective needs are those that are often seen to ensure our mental health. Examples of these are self-esteem, a sense of security and approval.The inability of meeting these needs can lead to a person suffering from illness (either physically or mentally), or even death.
Meanwhile, WANT is something that a person desires, either immediately or in the future. Wants can change over a period of time. This is in contrast to needs, which remain constant throughout the lifetime of the person.
The grey area between these two, is when the desire to obtain a particular thing is so extremely great, that a person may misinterpret a want, and see it more as a need.
In order to know whether what you desire for is a want or a need, is to basically ask one fundamental question: “Have you been able to survive without this?” If your answer is ‘yes’, then what you desire for is a want, no matter how much you crave for it right now.
Keep your budgeting low and stay safe.