The power of budgeting
Award-winning author and editor Tere Stouffer once said “used correctly, a budget doesn’t restrict you; it empowers you". This statement resonates deeply in today’s world, where individuals are tasked with navigating complex financial landscapes, often on our own.Financial literacy - the ability to understand and effectively use various financial skills - can make a significant difference in achieving long-term goals, maintaining financial stability, and overall quality of life. Achieving financial literacy, however, requires a willingness to confront one’s current financial situation and learn how to effectively manage your money, a daunting task for many Namibians.
According to a study conducted by the Bank of Namibia (BoN), a large percentage of households lack a formal budgeting process. In addition, 30% of Namibians demonstrated basic financial literacy skills, indicating a significant gap in understanding key financial concepts, including budgeting. These statistics provide a great backdrop as to why a large proportion of people do not engage in regular saving practices, with many citing a lack of structured budgeting as a barrier to saving.
When individuals understand how to manage their finances, they are more likely to make sound decisions, reduce debt and build wealth over time. This not only benefits the individual, but also strengthens communities and the overall economy.
Here are a few ways to take charge of your finances and manage your budget to better take charge of your financial future...
Budgeting: What is it?
A budget is an estimation of revenue and expenses that's made for a specified future period of time. It is a fundamental tool that empowers individuals and organisations alike, helping them gain oversight and control of their finances while planning for the future. A well-crafted and well-maintained budget serves as a road map, guiding individuals and enabling them to make and make informed decisions as life circumstances change.
Benefits of budgeting
Contrary to popular belief, budgeting is more than just restricting spending and has several short- and long-term benefits.
Peace of mind: Knowledge is power. Understanding where your money is going and where it should be allocated gives you control and fosters better decision-making. Having a clear understanding of your finances can help improve both your overall mental and physical health and give you peace of mind.
Reduce debt: A well-structured budget can help you manage and reduce debt overtime. By systematically allocating funds towards various debt payments, you can work towards becoming debt-free over time. Regularly reviewing budget allocations ensures that debt repayment is prioritised, making financial freedom attainable.
Grow your savings: Budgets are a surefire way of building financial discipline and improving your saving habits. Not only do they give you an opportunity to allocate amounts to your savings, but they also give you oversight on where and how you can reduce spending and increase savings. This disciplined approach is vital for building financial reserves and preparing for future needs.
Plan for the future: With better control over your finances comes the ability to plan for the future. Whether you are saving for a family vacation, purchasing a home, or planning for retirement, a budget can help you make your dreams a tangible reality.
Make budgeting a habit
With consistency, budgeting can become a norm and a way of life. Developing a budgeting routine leads to long-term financial health and resilience. Here are some practical ways to make budgeting a habit:
1. Prioritise your needs (essentials) over wants (luxuries). Spending on luxuries can be tempting, but focus on spending for essentials before indulging in luxuries. This approach helps reduce unnecessary expenses.
2. Include savings as part of your monthly budget. Treat savings as part of your necessary expenses, like your rent or electricity. By allocating a specific amount to your savings, you can ensure you always have money saved up for future needs.
3. Pay yourself first. Having a savings-first mentality is a great way to ensure you don’t spend all your money at once on discretionary items. Tip: Having an automated savings amount deducted on a regular basis makes this even easier to do.
4. Save with a goal in mind. Saving without a clear goal in mind can often leave you tempted to simply not save. No matter what you intend on using your future savings for, always ensure you have clear savings goals to keep you motivated and accountable.
5. Save what you can, no matter how little it may be. It can be difficult to start saving when you have little to save, but even the smallest amount can accumulate and make a difference in the future.
6. Save regularly in a separate interest-earning account. Keep your savings separate from your day-to-day accounts. With various savings and investment account options available at FNB Namibia, you can ensure your savings grow while taking care of your day-to-day responsibilities.
*Anielle Von Finckenstein is FNB Namibia's fiduciary head.