Personal Finance

Good budget key to realising your investment goals in 2022


It is a truism that many successful business enterprises take time to develop, manage, and review their budgets on a regular basis in a bid to monitor their financial situation and business performance.

Budgeting for companies is a critical undertaking as it identifies current available capital and resources, provides an estimate of expenditure and anticipates incoming revenues.

Through the process, companies can measure performance against expenditure and ensure that resources are available for initiatives that support business growth and development, reduce costs, improve profits and increase the return on investments.

It is however quite amazing that many individuals who are directly or indirectly affected by the budget planning process in their organisations do not budget for their own expenditure, expected revenue and future investment.

Research has revealed that 85 percent of all people do not budget and live trusting that everything will fall into place as long as life goes on. Only a few people budget for their basic needs like food, rent and school fees. After that, everything else is left to the vagaries and inconsistencies of nature.

Most people think that budgeting is a complicated process and equate it with complicated figures, numbers, formulas, and excel sheets. There is also a fallacy that in order to do a budget, you must have a lot of money. This is necessarily not true.

Everyone should be able to come up with a basic budget that shows expenditure, disposable income and debt. It will guide you to know how much you need to allocate towards your investment goals in the short, medium and long term.

As a general rule, you want to allocate 50 percent of your income towards your basic needs such as shelter, food, school fees, and insurance. Thirty percent should go to savings/investments, emergency fund and debt management while 20percent should be allocated to wants such as entertainment, parental support, gifts, etc.

If you are heavy in debt you need to allocate a further 10percent towards your savings and investments and work with 10 percent for your wants.

However, your debt management could also include increasing your income by pursuing that promotion at work, starting a side hustle, diverting your bonus to reduce the debt or allocating more funds to your investment portfolio towards debt reduction.

Another way of managing your debt is through debt renegotiation and debt consolidation with the financiers to enable you to reduce or stagger the amount payable.

For individuals about to retire, it is advisable for them to start focusing on their needs by cutting down on their wants at least two years before retirement by living below their income level to free up some funds towards investing in your pension plan. The accumulated savings/investments can be used to clear off debts once retired..

Once you free up some money through the budgeting process, there are various investment opportunities in the market that will be determined by your risk appetite and investment goals.

They include Unit trusts/Mutual funds like money markets fund offered by various fund managers in the country for short-term investments earning interest on your investment.

Equities/shares/stocks are shares floated on NSE #ticker:NSE . However, you will need an experienced financial advisor to guide you and also a financial literacy class to assist you understand how they work. You also need to decide on whether you are chasing capital gains or cash flow.

Bonds are long-term securities offered by organizations or governments towards specific projects and are medium to long term.

Real estate investment Trusts offer investment opportunities in the market by investing in income-generating properties like the Acorn Student Accommodation under VUKA investment. The consistent income generated from the rental properties is distributed to the unit holders in the fund

Your emergency fund should be utilized only in times of financial distress hence a money market fund would be ideal for this as access to this is within 24-48hours with most fund managers.

Sacco’s provide low-interest loans issued against one’s savings and are ideal for paying school fees and for investing in small or big projects. Pension funds are ideal for retirement planning and are offered by various pension administrators, fund managers and insurance service providers.

You can also start attending financial literacy classes to understand the various asset classes or investment opportunities available in the marketplace. This will enable you acquire the requisite knowledge needed to make the right investment decisions

All this can be achieved through continuous and consistent discipline while sticking to your budget so as to achieve your goals.