BUDGETING

Financial Pressure,
Financial Management,
Financial Planning,
Financial Goals,
Financial wellbeing
Lesson Outcome
By the end of the learning session, participants will be able to:
• Define a budget
• Outline Components of a budget
• Discussed the introduction to Personal Financial Management
• Explored the causes of household financial pressure
• Set financial goals and explained how to reach them
• Described what a financial plan is and how it can help achieve
financial well-being
• Design a personal budget (for day, week, month and year), financial
goals, track how your cash flows to make better financial decisions
The knowledge achievement in the end
We endeavor to achieve the following knowledge and skills:
Set Financial Goals
Examine Your Money Management
Describe the Importance of a Budget
Make a Budget
Make Spending Decisions
Stay Within Your Budget
Keep Records to Manage Your Money
Making a Will
Financial pressures people face
Named financial pressures:
rising cost of food items reducing purchasing power;
loans due when there are less income available;
school fees at hard economic times
illness forces unexpected expenses;
poor business performance brings in less income and makes it hard
to pay back the loan;
children’s weddings can be very costly;
funeral expenses use up all our savings;
relationship related expenses can ruin income;
Financial goals
Financial goals are the targets you define to achieve your financial dreams.
More income
Investment, stable and expanded business
Savings
Education
Food security
Home ownership
Secondary needs
Holidays
Emergencies
Financial goals comprise earning, saving, investing and spending in proportions that
match your short-term, medium-term or long-term plans
Types of financial goals
We can classify financial goals into three types –
Short term financial goals -
Medium term financial goals
Long term financial goals
Types of financial goals
Short term financial goals Medium term financial goals Long term financial goals
• have a time horizon of less than • have a time horizon one to • have a time horizon of a
one year decade or more and are
ten years
• contribute to immediate focused on achieving big
financial stability and create a • they bridge the gap between objectives that contribute to
buffer against unexpected short and long term goals your financial security and
expenses independence
• These goals have comparatively • examples of medium term
smaller scope and are easier to financial goals are funding • These goals require a
achieve your child’s education and disciplined and consistent
• Examples: emergency funds to starting a business, insuring approach to saving,
cover the period of loss of investing, and financial
employment, saving for a the business. planning.
holiday
• examples of saving for
• When you achieve your short retirement
term goals, you also get a
confidence boost which helps • Require revisions based on
you stay on track to achieve life changes, market
bigger goals. conditions, and other
economic changes
 How to Set Your Financial Goals
• Step 1. Self-Assessment
• Know your net worth (assets less liabilities). Establish your financial standing by evaluating your
income, expenses, savings, assets such as properties or investments, and liabilities such as
education loans or other debt
• Step 2. Define Specific Goals
• Set SMART goals (Specific, Measurable, Attainable, Relevant, & Time-bound). Be realistic to set
attainable targets as unrealistic targets will demotivate you and lead to frustration,
disappointment, and a sense of failure.
• Step 3. Classify the Goals
• Prioritize the goals as short term, medium term and long term
• Step 4. Create an Action Plan
• Break the classified goals into smaller achievable plans that are time bound. Form different
strategies to achieve different goals. For example, you may achieve your short term financial
goals just by saving regularly, but medium and long term financial goals require different
strategies, such as investing
• Step 5. Implement the Financial Action Plan
• Begin to save, start a business, invest your money appropriately
• Step 6. Monitor and Adjust
• ou have to regularly review and adjust your financial goals as circumstances change. Generally,
people review their financial plans annually to adapt to evolving situations.
Financial plan
financial plan is a tool to help you decide how to use your money to
achieve your goals.
Financial plan assist achieve the following:
Helps you decide your spending priorities for the future
Gives you discipline for spending and saving
Helps avoid unexpected money shortages thus financial stability
Helps you feel less financial stress

After setting your financial goals, plan where you will get the money
from. If you can't get enough money from your income, start some
“side hustle” or cut on your expenditure to have more savings
Money management
Here, we focus on income and expenses. Describe all the different ways
you earn and spend money
List your expenses & classify them appropriately (regular & irregular):
Necessary Expected Debt Optional Unexpected
Expenses Events Repayment Expenses Events
Food School fees Group loan Festival Medicine for
payment illness
Rent Wedding Holiday Funeral

Clothes Dowry Shylocks Picnic Loss of

property
Money management
Here, we focus on income and expenses. Describe all the different ways
you earn and spend money
List your income & classify them appropriately (regular & irregular):
Employment Business Farming Investment Remittance
Salary Earnings from Sale of farm Dividend from Money from
mitumba sale output e.g. shared relatives
cereals Interest from (locally or
Earning from fixed deposits abroad)
online jobs
If income is greater than expense = Surplus
If expense is greater than income = Deficit
Practical: Design a budget to determine whether you have surplus or deficit
Income
Farm Income 2,800
Business Income 7,000
Wages 5,600
Other income
Remittances 1,750
Rental Income 3,500
Interest on Savings 175
Gifts
Total Income 20,825
Savings 1,750
Income less of savings 19,075
Expenses
Debt Payments (Principal and Interest)
Mobiloans: Fuliza 1,050
Supplier Credit 1,225
Bank Loan 1,925
Sub-total 6,125
Necessary Household Spending
Utilities 1,575
Food 1,750
Clothing 700
School Fees 2,625
Travelling 875
Healthcare 1,750
Rent 700
Sub-total 9,975
Business Spending
Supplies/Inputs 1,750
Other (Transportation, etc.) 1,050
Sub-total 2,800
Optional Spending
Entertainment 175
Jewelry 700
Church Offering 1,050
Sub-total 1,925
Total Expenses 20,825
Surplus/Deficit 0
What are the importance of a budget?
• Allows you to assign your income to different types of expenses
• Helps you make decisions about spending and saving
• Encourages cautious and disciplined spending
• Allows you to take control of your financial situation
• Helps you organize and manage money more effectively
• Helps you plan for your future and meet your financial goals
Review your financial behavior:

How do you currently manage your

income and expenditures to meet
your personal financial needs?

How can you improve your budget?

Ways of improving your budget or finances
• List all income sources
• List all expenses
• Plan ahead to prevent spending more than your income
• Save surpluses to meet future expenses when income is low
• Maintain a flexible budget
• Track your spending to improve your finances
• Create a realistic monthly budget
• Pay your bills on time every month
• Reduce recurring charges
• Start an investment strategy
Budgeting is an important tool guide on
how you will use your income to pay
expenses - including loan repayments -
as well as to decide how much you can
save for the future.
What can you do to meet expenses when
income for that period is not enough?
• Save when you have surplus income, to spend during times when
income is less than you need
• Spend less during the low-income periods
• Plan ahead so you do not have to borrow to meet your household
needs
Benefits of Tracking Monthly Cash Flow
• Determine how much income is coming into the household
• Determine if and when you will have shortfalls (budget deficit)
• Make decisions on how much to save
• See where spending is high
• Make decisions about spending, and saving and investing more in the
business
How to Stay Within Your Budget
• Remind yourself often what you planned to spend
• Put in the budget something for unexpected spending needs
• Keep savings out of reach so you do not spend them (‘usikule’ savings)
• Keep track of what you spend
• Make sure you do not spend more than is budgeted
• If you spend more for one item, spend less for something else
• Make a list of ways to cut planned expenses
• Get the family to participate in developing and sticking with the budget
• When investing money in business, consider what to do if the investment
fails (diversification: diversify your investments)
• Reduce so many picnics or entertainment unless affordable
Ways to Cut Spending
• Consume less of non-essential items (beverages, snacks, luxuries)
• Spend less on parties and festivals
• Lower expenses on life events such as marriages and funerals
• Save enough to buy necessities in larger amounts at lower costs
• Plan ahead to buy necessities when the prices are lower
• Buy less on credit (kukopakopa kila siku haibambi)
• Carry less money or save money in a safe place; the temptation to
spend it won’t be there
• Keep the ATM card away
• Be mindful of the expenditure on dependents (relatives)
Evaluate the dangers of failing to budget
The consequences of failing to budget include:
risk of overspending
lack of savings and emergency funds
debt accumulation (which may lead to auctioning of property)
financial instability
inability to make informed decisions (poor financial decisions)
lack of financial direction and control
financial distress or failure and anxiety
vulnerability to bankruptcy
poverty, with possible slavery
Conclusion
• Always keep records
• Failing to budget leads to distressful life
• Successful people budget always
• Always track your income and expenses
• Remember to include saving as one of your expenses instead of
waiting for surplus to save
• Invest your surpluses
• Explore on Apps for personal budgeting

Financial budgets increases happiness in life

Assignment
Hypothetical case study adopted from Daily Nation Newspaper
My name is Dan. I live in Nairobi, Ngara, and my net salary is Sh.29,494. I work in Westlands area and use
matatus. I used to save Sh.4,000 per month in a sacco account but I haven’t been saving for the past six
months. My sacco savings were Sh.16,000 which I withdrew and spent. I am in a merry-go-round with a
couple of my friends where we contribute Sh.3,000 every month. We are 20 and I expect to get Sh.6,000
when my turn comes up in October this year. My problem is accounting and budgeting. I don’t know how
to budget or spend. Sometimes, I spend and find myself broke and with lot of mobile debts. I have tried
to use the 50:30:20 model but I can't seem to figure out how it works. I have a wife and we are expecting
a child in December. My wife is a veterinarian but is currently not practicing. She is jobless and expectant.
Please help me get my act in order.
Task:
1. Outline three financial problems being encountered by Dan
2. Advise Dan on the dangers of over indebtedness and operating on overdraft
3. Explain to Dan five dangers of failing to budget
4. Draft a budget with a surplus that will save Dan from the shackles of debts
5. Evaluate five ways Dan can apply to stay within the budget drafted in (3) above
6. Describe to Dan how 50:30:20 budget rule works, and why 40-30-20-10 rule is unfavorable for him