NFLP - Nationwide Financial Literacy Program

Making a budget is a simple task and once shown how it is done, almost anyone can make a budget. But following one and sticking to it, can be much harder. It takes discipline! You must respect each part of the budget, from establishing financial goals, to controlling your spending, to honoring your commitment to save. The following tips tackle most common issues people have with staying within their budgets.

Issue 1: Irregular income per month

If not a salaried person, one of the biggest problems people face in Pakistan is that of irregular income. Income and expenditure both fluctuate from month to month, and season to season. It is possible, however, to predict this in advance, to some extent. For example, ask yourself: what time of the year do you have a little more money? When are you short of money?

Use a calendar you can see that income and expenditures vary depending on seasons, activities, religious and social events as well as life events (for e.g. births or deaths). This calendar can be used as a tool to estimate income and expenditure trends while making a budget.

Issue 2: Staying within the Budget

With rising inflation and increasing responsibilities, how can any household stay within its budget? While it is not easy to do, its importance is vital to your financial well-being.

If you mix 3 – 4 different types of daal (lentils) together, it is very difficult to separate them later! Daal should be organized beforehand, so that is it not difficult to separate later. If you put different kinds of daal in one jar, how can you separate it when you need one kind of daal to cook?

Household spending should be like daal: By categorizing household spending, and keeping them in different clusters, a household budget helps ensure that all expenditure stays separate and does not intermingle. This way, when one is unexpectedly increased you can curb spending on another expenditure.

Try the simple but effective ‘Envelope Technique’. Organize your household spending into the following five categories: Business Expenditure, Household Expenses, Debt Repayment, Short-Term Expenditure, Long-Term Expenditure.

In order to better manage your money, at the beginning of each month you can allocate an amount for each of these envelopes and then divide their money between these. It is not important for savings to be in thousands. A little amount is also a contribution towards short term or long-term savings goals.

This is a great way to keep savings separate and out of reach, so that it is not spent and keep track of your spending.

Issue 3: Expenditure Exceeds Income

The third and very common issue raised by people is: What to do when expenditure exceeds income? Despite sticking to your budget and tracking your spending, this is a common concern which comes up often. There are two solutions that are directly within your control: to earn more money or to spend less money.

The third and last option, depending upon your borrowing power and type of credit utilized is to borrow money. Before you do, however, read our recommendations for Debt Management.

When conducting field trainings for the Nationwide Financial Literacy Program, this was a question our trainers would put out to low-income rural population around the country. Some very enterprising suggestions would come up. See if any of the following can be applied by adapting it to your lifestyle or skill-set.