Have you considered how much of your earnings you cannot account for? Apart from your needs, like groceries and wants like a new pair of black shoes, there is another real category called the “Unclassified and Uncaptured spending”.
There are many ways to set a budget and to decide how much to spend on a monthly basis, after you have paid yourself.
Paying yourself is the act of immediately deducting an amount from your income and placing this in a savings or investment account.
An aggressive recommended budget ratio is “10:30:10:50”
- 10% as Tithe
- 30% into a Savings account (which can include an emergency fund)
- 10% towards investments
- 50% towards wants and needs.
After some research we found that people spend between 15 – 29% of their income on items that were not budgeted for and they cannot account for.
Unbudgeted spending are all those items that you either did not plan for or didn’t budget for because they seem small and random. All those loose amounts spent on credit for your phone, buying magazines, eating out at tantalizers, going to the salon all add up and end up accounting for a major chunk of your spending.
Personally when I started tracking my spending, I noticed a huge amount I was spending that fell into a category I could not directly account for. You know that feeling of pulling N20,000 from the ATM and you are scratching your head to remember what you spent it on. Thanks to tracking my spending I noticed over time there there were items I was spending on that were not one-off and showed up at least every two to three months.
I tackled this by creating a budget category for these items that seem to be unclassified, non-recurrent that eat into your spending. You can only track and manage spending where you know what you are spending on.
Real effect imagine the example below –
|
|
|
Per Month |
Per Annum |
|
|
Income |
500,000 |
6,000,000 |
|
10% |
Less Tithe |
50,000 |
600,000 |
|
30% |
Less Savings |
150,000 |
1,800,000 |
|
10% |
Less Investments |
50,000 |
600,000 |
|
|
Income Left to spend |
250,000 |
3,000,000 |
|
|
Budget |
200,000 |
2,400,000 |
|
|
Unclassified |
50,000 |
600,000 |
So in this case, in one year Sami who earns N500,000 per month can spend up to 20% of his disposable income on unbudgeted spends and at the end of the year would have spent N600,000 he DID NOT budget for.
Think about all the things that this money could have used for? It could have been into a fixed deposit account earning 7%, used to purchase shares, used to start a side business, or even as installment payment for a piece of land in an estate.
The point is that this adds up and its best for you to try and close this gap. Understanding where your money goes is the only way to curb your spending.
Next week we will talk about some practical tips for tracking spending.
photo source: rhrealitycheck
