Budgets- a tool for Financial Independence - PART ONE

5 min read

BUDGETS- as a tool for Financial Independence - PART ONE


One thing that has been proven time and time again, is how insatiable human needs and wants are. No matter your level of income (unless you’re the world’s richest person lol), there are things that you’d always want to get but your income levels wouldn’t permit you. The term unlimited wants refers to the side of human nature that wants an infinite number of things. However, our available resources for meeting these wants are usually limited and thus a mismatch. This then calls a need to prioritize our needs and wants which in economics is called the scale of preference. This refers to just ranking what you need in order of priority and importance in the quest of satisfying your needs. Now, when this is done, it’s important we budget for these things considering our levels of income.


Budgeting refers to creating a spending plan for your money which will help you determine in advance whether or not you will be able to have enough money to do the things you want to do( i.e. satisfy your needs). A budget can also be defined as a list of projected income and expenses.


Before we go deeper into what a budget entails, I’d share a story. There once was a conference and the speaker asked his audience to show by hand how many people were not satisfied with their salaries. Everyone lifted their hand. Then, he asked them how many people felt that earning double their current salary would make them lead a comfortable life. Again, everyone lifted their hand. He then chose 10 people at random, gave them a sheet of paper and asked them to write their current salary. The smallest was 500 ghs and the largest was 25K ghs. Others earned 1500, 5k and 10k and the likes.

The morale of the story, he said, was the person earning the 500 believes earning 1,000 ghs would make him comfortable. Someone who’s currently earning 1,000 ghs feels uncomfortable and wants 2k. The person even earning 25k wants 50k. This goes to show that no matter our level of income we will truly not be satisfied and always year for more. After all, how much enough is truly enough.

It is therefore important that, no matter our level of income we put something aside as investment of savings as we cannot use our meager incomes as an excuse to not save or invest.

Do not procrastinate. Begin now, Begin today!because an early start can make all the difference. For example, don’t say my NSS money is too small to save or even the money i am given to take to the university. Even if its 20ghs, save it.

I like the inspiring wisdom found in this old Chinese proverb: "The best time to plant a tree was 20 years ago. The second best time is now


“THE PARETO PRINCIPLE or the 80/20 rule.” This principle is also referred to as the “law of the vital few “ and states that, for many events roughly 80% of the effects comes from 20% of the causes. This law has been applied in economics, computing, sports, engineering etc. In this setting, we will reference it in a different way to suggest that “no matter your level of income you should save/invest the vital 20%”.

A key pointer here is to “Save before you spend” Put your 20% down like it never was yours or like you never came into contact with it in the first place

Here’s why, if you don’t save anything from your income but rather spend everything, you effectively become an INCOME REDISTRIBUTION CENTER. That is to say, you use everything of your HARD EARNED salary/income to pay other people instead of yourself. When you pay rent, utilities, buy data, pick an uber, buy groceries, you’re effectively paying others. It is therefore important that you pay yourself through the investment you do for yourself! Think about it! Be “selfish “.


The 80:20 rule can be broken down further into a 50:30:20 rule. The 20% still remains as your investment but the 80% has been sub divided into the 50% and 30%. The 50% would represent the portion you allocate to your FIXED expenses whereas the 30% is for the VARIABLE expenses. One key note here also is the ratio is NOT CAST in stone but rather provides a guide for you to apply to your SPECIFIC situation. Remember we’re faced with different situations so find a formula that works for you. But always remember to allocate something for your savings.


As a human being , there are some basic needs that we cannot do without. These include food, clothing, shelter, utilities, transportation etc.

Without these basic needs, life becomes a bit harder to live. Thus, it is important we allocate a big portion of our budget to these things to make life a bit easier.

For example, in drawing your budget, you should estimate how much you spend on food daily -whether you’re at work or in school and how that translates over a period say a week or a month. For instance, a typical Ghanaian worker would spend between 10ghs and 30ghs on food daily. 5ghs -10ghs on public transport daily and 25-50ghs for those who opt for private transport services such as uber, bolt etc. For others who have their own cars, it’s important to note how much you on average spend on fuel for a given time. Having these written down is the very first step to putting together a good budget.


these are expenses that change from period to period or doesn’t happen often. For example, going for a movie show, concerts, hangouts with family and friends. It is important that you anticipate the likely things that will come up in the coming period for which you’re budgeting for. For example if you know the birthday of your boyfriend/girlfriend is next month or say valentines day is next month and you would want to get a gift for them, it is important you budget for it.

Nonetheless it is not always possible to anticipate the variable expenses you’d have in a given period. For example, you cannot tell whether you or a family member will fall sick that you will need to pay up something for medical care. Or for a particular day uber prices could be so high that you might have to pay extra for an already budgeted for transportation expense. Thus it’s also important to include in your variable expenses an allocation for “Emergencies “ so that you’re not caught off guard when these things occur.

To have enough room to save, it is important that you cut down on your variable expenses. For example if you’re someone who hangs out every weekend, adjust a hang out twice a month instead of 4 times a month.

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Tags: budget | financial | spending |