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The key to a financially secure retirement is learning how to manage your money well while you are still earning it.
If the cycle of running low on cash and anxiously awaiting your next inflow of funds sounds familiar, budgeting might be the key to breaking free. An efficient budget can help salaried employees and the self-employed overcome financial uncertainties.
With budgeting systems available for different lifestyles and income structures, the challenge lies in selecting one which is tailored to your unique needs, cash flow, and financial goals. In Uganda, where the savings rate is relatively low—with many households saving less than 19.2 percent of their monthly income as of 2023 according to the World Bank—an effective budgeting approach could help individuals meet financial obligations while working towards long-term stability and financial freedom.
The 50/30/20 rule
One of the most popular budgeting methods is the 50/30/20 rule, which divides income into three key categories. The first 50 percent goes toward essentials such as rent, food and utilities, 30 percent for discretionary spending such as entertainment and dining out and the last 20 percent for savings and debt repayment.
This approach is simple and clear, offering an easy-to-apply structure that even beginners can understand. However, while this approach works well for those with steady incomes, it may be less suitable for self-employed individuals with variable incomes or those with high debt loads, given the limited allocation for debt repayment.
Setting spending limits by category
Another effective approach involves establishing strict spending limits for each category of expenses. For example, setting a monthly grocery budget of Shs200,000 allows you to plan purchases within this limit, reducing the risk of overspending. If you spend less, you can either save the surplus or allocate it to another category. This approach emphasizes discipline and planning, both crucial for meeting long-term financial goals.
For Ugandans who may face fluctuating prices on essentials such as food, setting spending limits encourages mindful consumption. This method can be adapted over time, making it flexible for changing financial conditions, and is useful in helping people stick to planned expenditures.
The “Pay Yourself First” approach
The “pay yourself first” approach is another method that is gaining popularity, particularly among those looking to increase their savings rate. This strategy involves allocating a certain percentage of income to savings before addressing other expenses. For instance, by setting aside 15% percent of each pay cheque or monthly income for savings, individuals ensure theyare meeting their financial goals upfront. What is left after savings can be freely spent without guilt or worry.
In Uganda, where data shows that the majority of households have little or no emergency savings, this approach could help more people develop a savings culture. Building a habit of saving first provides a cushion for future uncertainties, including emergencies or unplanned expenses.
To create a budget that works, you need to personalise your budgeting process based on your lifestyle, goals, and income. Here is a guide to help you get started.
Financial security begins with a plan.
1. Assess your lifestyle and income
Creating a sustainable budget starts with understanding your lifestyle and income. Begin by listing your major expenses, such as housing then add in smaller but consistent costs, such as entertainment and personal care. Finally, set realistic amounts for each category to avoid cutting back on essentials or overspending on non-essentials.
For instance, if your monthly income is Shs1,500,000, knowing that food accounts for 30 percent of your expenses and transport takes up 15 percent allows you to structure your spending effectively. Tailor these allocations based on your specific needs, keeping in mind that it is essential to leave room for savings and investments, even if you start with just a small percentage.
2. Define your financial goals
Whether you aim to clear debts, save for a down payment, or build an emergency fund, choosing a budgeting system that prioritizes these objectives can simplify the process. Many Ugandans struggle with balancing immediate needs and future planning, especially with increasing costs of living. For example, if your primary goal is to reduce debt, a system like the “pay yourself first” approach, with emphasis on debt repayment, might be suitable.
When your budget is aligned with your financial goals, each expenditure becomes purposeful. You are no longer just tracking money but ensuring each decision supports your future.
3. Choose a manageable system
Consistency is key in budgeting, so choose a system that fits naturally with your lifestyle. Budgeting apps, spreadsheets, or even a simple notebook can all work effectively. Budgeting isn’t about the format but rather about adopting a structure you can stick to month after month.
Consider mobile apps to set up automatic tracking, making it easier to monitor progress without daily entries. Alternatively, a traditional spreadsheet might appeal to someone who prefers manually inputting and reviewing their expenses. The key is choosing a system that aligns with your routine and preferences.
4. Adjust as needed
Budgets are not static. Financial priorities and income levels can change, and your budgeting system should adapt. If you are saving more, consider redirecting funds toward new goals or investments. If costs in one area are rising, balance by adjusting allocations elsewhere. Flexibility ensures your budget remains relevant, supporting long-term financial security and growth.
Finally, a budget is not just about numbers; it is a structured system that, when chosen carefully, can align with and support your financial goals.
Brian Bongomin is the manager of business development & operations at Enwealth Financial Services Limited.
