Applying Pay Yourself First in Budgeting 2
From Pay Yourself First in Budgeting part 1, we used the illustration of en employee earning a gross monthly salary of N150k. With tax an pay roll deductions amounting to 20%, tithes/giving and savings amounting to 10% each of gross income, the total deductibles from gross monthly income comes to 40% or N60k. That means the net monthly income is N90k. This is based on the principle that the 40% are top line deductions and should not be considered part of net or disposable income (to be disposed of, naturally).
Regarding this N90k as your net income means planning your monthly expenses around this amount. This is where you cut your coat according to your cloth. Your cloth in this instance is N90k. If you have been spending more than N90k per month, it means you need to bring out a long sharp knife and slash off the fat in your budget until it fits. Anything above N90k is excess baggage.
Nobody needs to tell you what to slash. You are the one that wears the shoe, so you know where it pinches. It might be to boil or filter your water rather than buy bottled water, it might be cutting down the frequency of eating out, it might be downgrading your cable TV bouquet, or moving to free to air etc. You know what it is you need to cut. Nobody needs to tell you what you need to slash from your budget. There are a thousand and one blogs on frugality with tons of information on how to lower your household costs. Not every tip works with everyone. You can decide which one works for you.
Another thing to note is that this is not a permanent bus stop, but a temporary one. Life should become more fun, not drearier. What you are doing now is to make your numbers work, so that your money can have opportunity to work for you while you grow the habit of having money work for you, not working hard for money. As your income increases through profit from other income streams, you can afford to relax the belt and increase your standard of living. This will be done while paying yourself still.
There are sacrifices that need to be made today so that tomorrow will be better. When your budget supports your financial goals, you are well on your way to achieving financial independence.
Usiere Uko is a writer and bestselling author of Practical Steps to Financial Freedom and Independence, Available on Amazon.
He also writes for Punch AM Finance, Leadership & Lifestyle and Today’s Lifeline magazines.
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