January 20, 2022

How to Create a Rock Solid Budget in 5 Easy Steps


Read any article or blog post about savings or financial planning, the word ‘budget’ is mentioned in almost every one. But what is a budget? And how does one go about making one?

Let’s start with the basics. A budget is basically a summary of your income and expenses over a period of time. Unlike popular misconceptions, a budget is not a restriction. It is simply a tool to allow you to track your expenses in line with how much you are making to help you meet your financial goals.

Now that that’s clear, let’s talk about how to make a budget.

Step one:

Calculate your post-tax income

The first step is pretty straightforward. Do a quick sum of how much you are making every month. This includes your salary as well as income from any other sources such as investments. 

If you are a non-salaried individual with a variable monthly income, then it is best to use the income from your worst month as a baseline for this budget. 

Step two:

Create a monthly list of your expenses and categorize them

This is where it gets a bit trickier. Once you have determined your income, it is now time to make a list of everything you typically spend money on. 

It is best to start off with your fixed expenses- what you need to pay every month without fail. This is your rent, KPLC and water bills, WiFi, school fees, loan repayments etc. You know the drill. 

Once you have all your fixed expenses covered, then add in the variable expenses such as eating out and other social activities, shopping, personal care and the like. These are the expenses that will change from month to month. It is also helpful to add a category for ‘miscellaneous’ or ‘surprise expenses’ for any unplanned expenses that might come up.

If you are unsure of how to do this, take a look at your expenses over the last three months to identify where you are spending money and how much.

Step three:

Calculate the difference

Sounds simple, right? Calculate how much money you will have left at the end of the month after totalling up all your expenses.

But this is not all! Look at the difference. Is that how much you are comfortable saving at the end of the month? Chances are, probably not. It is very easy to forget the big picture when spending money, which is why this step is crucial to making a good budget.

Step four:

Make a savings plan

This is the most crucial step of all. Look at all your expenses and determine what needs to be cut in order for you to save an optimal amount every month.

Not sure how much to save? Follow the 50-30-20 rule! 

It is very simple. Dedicate 50% of your income to your needs- that is everything that you can absolutely not live without. 30% will cater to your wants. The new wallet that you have been eyeing for the past three months? That will fall under your wants. As will a spa appointment or any social gatherings.

The remaining 20% is how much you need to save. It is very helpful to keep this money aside at the beginning of every month so you don’t get tempted to use it. We recommend saving on Koa! With Koa, you can create a savings plan that works for you and customize it at any time. And we offer an interest rate of up to 10% per annum so your money grows over time without you having to do much about it. We also keep you accountable by sending out reminders and saving tips.

The 50-30-20 rule is not for every individual. Depending on where you are in life or your financial obligations, you may be able to save a lot more or a lot less. But it is crucial to dedicate a certain percentage of your income to savings and put it aside without fail every month.

Step five:

Keep an eye on your budget and adjust your habits

It is very easy to make a plan and then forget about it. But the key to any good budget is to make sure you follow up on it. At the end of every week, look at how much you have spent and see if it aligns with your savings plan.

If it doesn’t, then think about what you can cut from your budget to make it work. Maybe you can buy that wallet next month or have drinks at home instead of the bar. 

Or on the bright side, you may get a raise or get more interest than you expected. Always make sure that your budget accurately reflects your financial situation and make changes accordingly. 

And lastly, if you have any money leftover at the end of the month, then put it towards your savings! It is super tempting to splurge, but your future self will thank you for saving it instead. Trust us!

Not sure how to start saving?

Read our tips here.