Kenya, like most other countries, has struggled with massive economic challenges, especially post-pandemic.
The rising inflation and increasing cost of living have been felt by almost every Kenyan. The country’s resilience has been put to the test, and for the most part, it has survived it. One of the tools that comes in handy when facing economic periods as tough as these is budgeting.
Budgeting is the practical response to the shifting tides in the economy. It gives people much more confidence when they face uncertainty with some form of strategy, which is exactly what budgeting provides. There are a number of techniques, budgeting rules and essential strategies that empower individuals. Some of the rules that experts have advanced for budgeting are:
The 50/30/20 Rule
This is the most common rule of budgeting, and it aims to create a balance in finances. It categorizes income into three equal categories. Imagine income as a pie, and there are three equally important slices: essentials, discretionary spending and savings/debt repayment. In Kenya, this rule can be a compass to ensure financial stability.
For example, if monthly income is KES 60,000 , allocate KES 30,000 (50 percent) for essentials like rent, utilities and groceries. Reserve KES 18,000 (30 percent) for discretionary expenses like dining out or leisure activities. Finally, dedicate 12,000 shillings (or 20 percent) to savings and debt repayment, which could go toward an emergency fund or reducing outstanding loans.
The 70-20-10 Rule
Debts are a very crucial tool for growth in finance, and this rule says people should prioritize it in budgets. Financial experts often recommend dedicating 20% of income to savings and 10% to debt repayment. If someone earns KES 50,000 monthly, this rule suggests allocating 10,000 shillings to savings, which can go into a dedicated account for future goals or emergencies. Additionally, KES 5,000 should be set aside for paying down debts. In Kenya, this approach encourages aggressive savings while responsibly managing existing debt.
The Emergency Fund Rule
This rule emphasizes safety while budgeting. Kenya’s volatile economic landscape, characterized by unexpected expenses, underscores the importance of an emergency fund. The rule advises saving three to six months’ worth of living expenses. If monthly expenses amount to 40,000 shillings, the goal should be to accumulate KES 120,000 to KES 240,000 as an emergency fund. This financial cushion helps tackle unforeseen challenges without compromising the budget.
The 24-Hour Rule
Impulse buying is one of the greatest enemies of financial growth and discipline, and this rule helps avoid that. The 24-hour rule teaches people to wait a day before making significant purchases. This delay provides time to consider whether the expense aligns with the budget and financial goals, reducing impulse buying. For example, if someone wants to buy a new smartphone, they should wait 24 hours before making the purchase. This waiting period often leads to more thoughtful decisions.
The Zero-Based Budget
This budgeting rule seeks to account for every single coin a person has. With a zero-based budget, all income is allocated, down to the last coin. If someone earns KES 45,000 per month, this approach requires assigning KES 12,000 to rent, KES 5,000 to utilities, KES 8,000 to groceries, and so on. The key is to make sure every shilling is put to work.
Budgeting skills are so vital they seek to guide people when undertaking the processes. The rules should not be taken as one-size fits all solutions. However, people should evaluate their financial situations and pick the one that suits them best.
