Smart Budgeting Tips for Rising Costs

 

Let’s also digress a little bit today to talk about our current economic situation and what to do about it at the micro level.

It’s no secret that prices are climbing everywhere! Petrol, transport fares, groceries…everything is going up, but our paychecks? Not so much. If you’re wondering how to make your monthly income last through the month without running on fumes, you’re not alone. Whether you’re in Nigeria, the US, or anywhere else, budgeting has never been more important.

Don’t worry, though. Budgeting doesn’t have to be complicated. We’ll break it down and share some simple strategies to help you stay afloat, even when prices are rising.

Step 1: Know Your Income

Let’s start at the top – what’s your take-home pay? Whether you're earning a steady salary or freelancing, the first step to effective budgeting is knowing exactly how much you're working with. It sounds obvious, but lots of people budget based on what they think they make, not what they actually get after taxes, deductions, etc.

To do this: Write down your monthly income. If you’ve got multiple income streams, total them up. If your income fluctuates, take the average of your last three months to get a rough figure.

Step 2: Track Your Expenses

Now, let's get into the nitty-gritty of where your money goes. Do you know how much you spend on food, transport, and other essentials? Chances are, you don’t have an exact figure. It’s time to start tracking your expenses.

For one month, jot down every single thing you spend money on. This might sound tedious, but it’s the best way to understand your spending habits.

Some key areas to track: Food (Groceries and eating out), transport (Petrol, buses, ride-hailing services, etc.), housing (Rent, utilities, repairs), savings (Emergency fund, savings goals) and other necessities (Airtime, data, healthcare).

Once you have a full picture of your expenses, it’s time to categorize them.

Step 3: The 50/30/20 Rule (With a Twist)

There’s a classic rule in personal finance called the 50/30/20 rule. It says:

- 50% of your income should go to needs (housing, food, transport)

- 30% to wants (dining out, entertainment, shopping)

- 20% to savings and debt repayments

But with rising costs, we’re going to have to tweak this.

Let’s introduce the 60/20/20 rule:

- 60% to essentials – This covers your rent, groceries, and transport. With food prices rising, this is where the bulk of your income will go. It’s okay if it’s higher than usual; the goal is to manage your essentials first.

- 20% to savings/debt – Even in tough times, don’t neglect your future. Try to save or pay down debt.

- 20% to wants – Yes, you can still enjoy life. But you might have to cut down on non-essentials like eating out or buying new clothes for now.

Step 4: Cut Down the Big Three (Housing, Food, and Transport)

When prices are rising, the quickest way to free up money is by cutting back on the big three: housing, food, and transport. Here's how:

1.Housing

If you're renting, you might feel stuck, but there are ways to reduce costs:

- Negotiate with your landlord. Many landlords are open to reducing rent if you commit to staying long-term.

- Downsize.  Moving to a smaller, more affordable place may seem drastic, but it could free up a lot of cash.

- Share rent. Getting a roommate or sharing a flat is a great way to cut rent in half.

2.Food

Food prices are through the roof, but you can still eat well without breaking the bank:

- Cook at home. Eating out is a luxury. Plan your meals and cook in bulk. Meal prepping can save you a lot of money.

- Shop smart. Look for deals, buy in bulk, and avoid impulse buys. Consider switching to local markets instead of supermarkets.

- Cut down on fish. Fish is often one of the most expensive items in the grocery cart. Try more plant-based meals.

3.Transport

Petrol prices are hurting everyone, but transport is one area where you can save big with a few adjustments:

- Use public transport. If possible, ditch your car or at least use it less often.

- Carpool. Share rides with friends or colleagues to split fuel costs.

- Bike or walk. If you live close to work, biking or walking not only saves money but also keeps you fit!

Step 5: Embrace Side Hustles

When your paycheck doesn’t cut it, it’s time to think about extra streams of income. A side hustle can bring in some much-needed cash, whether it’s freelancing, selling products online, or offering a service like tutoring or writing.

In Nigeria, where petrol and food prices keep increasing, many people are turning to online jobs like:

- Virtual assistant gigs

- Social media management

- Selling items on platforms like Jumia or Konga

The key is to find something that fits your skills and can be done in your free time.

Step 6: Automate Your Savings

Saving might seem impossible when prices are rising, but even setting aside a small amount can add up over time. Automating your savings can make this process painless. Many banks offer automated savings options where a portion of your paycheck is moved into a savings account automatically.

In Nigeria, apps like PiggyVest and Cowrywise make it easy to save by automating deposits from your account.

Step 7: Prioritize Your Debt

If you have debts hanging over your head, now is the time to create a repayment plan. Prioritize high-interest debts like credit cards or personal loans. You don’t want to be paying more interest than necessary during tough times.

- Snowball method: Start by paying off your smallest debt first while making minimum payments on the rest. Once the small debt is cleared, move to the next.

- Avalanche method: Pay off the debt with the highest interest rate first. This saves you the most money in the long run.

Step 8: Don’t Forget Emergency Funds

An emergency fund is your safety net. It’s the money you dip into when unexpected expenses pop up (and they always do!). Aim to have at least 3-6 months’ worth of living expenses saved.

Start small. Even if it’s just ₦5000 or ₦10,000 a month, it’s better than nothing.

Step 9: Reevaluate Wants vs. Needs

With prices rising, you’ll need to get strict about what counts as a “want” and what is truly a “need.” Ask yourself these questions:

- Do I really need this? Or is it just something I want right now?

- Can I find a cheaper alternative?

- Will I regret this purchase later?

You’ll be surprised how much money you can save by putting purchases on hold for a few days and asking these simple questions.

Step 10: Be Mindful of “Lifestyle Inflation”

As incomes grow, people often find themselves spending more, a phenomenon known as “lifestyle inflation.” Resist the urge to increase your spending just because your income has risen. Instead, keep your expenses steady and funnel any extra income into savings, debt repayment, or investments.

Step 11: Use Budgeting Apps

We live in the age of technology, so why not use it to make budgeting easier? Budgeting apps can help you keep track of your expenses, income, and savings. Here are a few options:

- Nigeria: Wallet.ng, Money Manager, Spendee.

- Global: Mint, YNAB (You Need a Budget), Goodbudget.

These apps categorize your expenses and give you a visual breakdown, making it easy to see where your money is going.

Step 12: Embrace Minimalism

When prices rise, sometimes it’s best to go back to basics. Embrace a minimalist lifestyle by cutting out unnecessary expenses. Living with less not only saves you money but can also bring a sense of peace and fulfillment.

Focus on experiences rather than material things. Instead of spending money on new gadgets or clothes, spend time with family, enjoy a walk in the park, or take up a hobby that doesn’t cost much.

Step 13: Plan for the Long Term

It’s tempting to focus on getting by month to month, but don’t forget to think about your long-term financial goals. Whether it’s saving for a house, your children’s education, or retirement, start planning now. Rising prices won’t last forever, and when things stabilize, you’ll be glad you kept your eyes on the future.

Final Thoughts: Budgeting for the Present and Future

We’re living in tough financial times, but with a smart budgeting plan, you can still make your income last the month. By tracking your expenses, cutting down on unnecessary costs, and embracing budgeting tools, you can stay on top of rising prices. Remember, budgeting isn’t about depriving yourself, but about making sure your money works for you. The key is to be proactive, plan ahead, and make small adjustments that add up in the long run.

Your money should give you peace of mind, not stress, so take control of it today!