How to develop personal budgets and investment plans

Without budgeting and planning, we cannot achieve the financial future we desire if we do not get the basics right.

A personal budget is an essential tool for managing our incomes, controlling our expenses and ensuring that we have enough money left over for wealth creation.

To control the future, we must plan and create the future we desire. At every point in our lives, there’re important events that life brings.

For the young man in his late twenties, it is marriage, getting his own apartment and having children.

For the middle-aged, it is paying for tertiary education and weddings of their children.

Though we believe ‘God will provide’, we have to be sure our case is not one of ‘God has provided’ but we used the money imprudently.

We must set something aside from every income we receive. It’s not the absolute amount but the percentage – so irrespective of how much we earn we must practise keeping a percentage for ourselves.

It’s what we keep that we can use to meet the financial considerations of life’s events, emergencies, and wealth creation.

In wealth creation- it is not how much you earn that matters, it is how much you keep. To know how to save, we need a spending budget.

For us to diligently adhere to the budget, it must be realistic and not significantly diminishing the quality of our life.

We need to make sacrifices, but they must be gradually introduced, and every member of the family must be on board. A realistic budget carefully considers all our spending obligations and put realistic figures on them.

Popular wisdom recommends that before the budget is developed, we spend one month (one salary circle) writing down every kobo we spend-this enables us to determine how much to allocate to each category of expenses and which expenses we can successfully reduce.

Budgets should make allocations to food, housing, utilities, personal care and clothing, transport, dependents’ requirements, entertainment, taxes, insurance, creation of emergency funds and savings.   

Next, we create a financial plan that details when we want a life event/investment to occur. The timings coincide with the time we take to raise the amount of money required to meet the needs of the event/investment.

However, some life events do not ask our permission before they occur. A child going to law school or any school at all happens whether we are prepared or not.

But we if we have been proactive and prepared early with sufficient savings and creative investments, we would have the school fees available-after all, we got four or more year preparation period.   

Like all plans, our financial plans must contain SMART components -Specific, Measurable, Achievable Realistic, and Time-Bound with Threats Mitigated.

Regular savings is our gateway to financial freedom. Little drops water make a mighty ocean. So, we need to be patient with ourselves and be consistent in building up our Investible Funds.

We should not be looking for get-rich-quick schemes. People who get rich quick soon become poor because they never learned the principles of wealth creation, retaining, and multiplication.

Before financial management training became common for lottery winners, studies showed that over 99% of them became poor within 5 years despite winning tens of millions of dollars.

We need to develop a saving habit-remember what happened to Nigeria when crude oil prices dropped below $35.

We had nothing to show for the times when it was over $100. It is easy to criticize our leaders but we mirror the same errors in our personal finances.

Savings are the vehicle we use to generate funds for investment in higher-yielding assets like treasury bills or stock market investments. Savings themselves yield close to nothing in return.

Our investment portfolios must be diversified include money market (fixed deposits and government bonds), equity market (shares of blue-chip companies), real estate (we can start with real estate bonds from the money market) and even private equity.

Diversification may not be justified when our investments are still few, but we must always pursue diversification as an investment objective. Remember the adage-do not put all your eggs in one basket.       

Budgeting and planning help is available in our cellphone app stores. The apps have features for budgeting, payment reminders, investment management, enforcement of spending limits, etc.

They use artificial intelligence to help us manage our finances and create the financial future we desire. Wasting another day puts us at the disadvantage of the time value of money. Let’s move now.
Happy investing.

Note: This piece is culled from the Financewise Column of Ololade Adesola as published in the Nigerian Tribune of 13th November, 2019.

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