Most people associate a budget with a restricted lifestyle, no fun, and generally figures which most people have an aversion for. Sadly though, for your personal finances to make sense, you’ve got to have a plan of how you will spend your money once it’s earned. This doesn’t have to be some fancy Excel or Quickbooks document, it can be in a notebook, but everyone must have a budget.

A budget is borne of your expense tracking results, adjusted accordingly for items we discussed in Personal Finance 101.

Most people wait till they’re at a certain income level so they start budgeting, well, it’s never too late, but the earlier you start, the better it is for you.

One doesn’t have to earn alot to have a budget or to save. It’s key to learn to adjust your lifestyle when you have little, because you will never have enough to cover your lifestyle. For example, when I got my job in 2006, my starting take home was Kshs 31,000, I lived in a rented house in a fairly good neighbourhood (it was very cosy, read small), managed to save, and give too. If you get used to spending it all, you will never learn to save.

Savings

How much should one save? Experts recommend a basic minimum of 10%. If you’re starting out, this is quite alright, but in my opinion, anyone taking home over Kshs 80,000 should be saving at least 45% of their income if they’re living in Nairobi. Tall order? I think not. It’s all about prioritising what’s important, what’s not, what can be consumed today, and what to consume tomorrow.

The earlier you save the better. Sample this (quick rough calculation):

Assuming one got a job at 22 years old, was earning Kshs 35,000 bob per month, of which she saved Kshs 3,500, in a scheme that was growing at 10% per year (we’ll discuss this later).

Assume, that her salary grew by 10% every year, and with this, she increased her savings by a similar percentage, so if she was saving Kshs 3,500 this year, it increased to Kshs 3,850 the following year, as her salary increased to Kshs 38,500. This is conservative as most of us double our salaries within the first or second years.

If this lady keeps at this, saving 10% of her salary into this savings scheme, and decides to cash in at 45 years, she will have Kshs 8.6Million, at 55 years, she will have Kshs 32.19 Million in savings.

The key is to start as early as you possibly can, because if you started to save at 30, you would need to start at saving about Kshs 10,000 per month and growing, to have Kshs 32.19 Million in savings at 55.

The earlier you start, the better, but then again, it’s never too late to get your finances in order.