Table of contents
Budgeting is essential to stretch your money throughout the month, especially in a country where the cost of living changes unpredictably. A solid budget is the best way to control your finances. It helps you separate needs from wants, save for the future, invest wisely, and build an emergency fund for unexpected expenses.
We spoke with Oluchukwu Chiadika, your personal finance girl. With eight years of experience helping Nigerians manage their money, she breaks down practical, Nigerian-specific budgeting strategies that work whether you’re a salary earner, freelancer, or business owner.
What is a Budget?
A budget is simply a plan for your money. Many people assume budgeting is complicated, but at its core, it’s about knowing how much you earn and spend and ensuring your money goes where it should.
Budgeting isn’t just for people who earn a lot of money. It’s the key to creating the life you want. Sticking to a budget isn’t easy, but here’s how to make it work.
How to Build a Budget That Works for You
Budgeting in Nigeria isn’t just about cutting costs. It’s about understanding your money and making it work for you. Oluchukwu breaks it down into four simple steps:
Step 1: Know Your Income
Before creating a budget, you need to understand how much money you earn each month. Your income forms the foundation of your budget.
- Write down all sources of income — salary, side hustle earnings, freelance gigs, or family support.
- If your income fluctuates, calculate an average from the last three months.
Step 2: Understand Your Expenses
Before any budgeting method can work, you must first know where your money is going.
- Track your spending for at least a month.
- Review your bank statements from the past three months to spot spending patterns.
- Compare income vs. expenses — are you spending more than you earn?
- Identify unnecessary expenses and areas to cut back.
- Categorise your spending into essentials (rent, food, transport, data) and non-essentials (subscriptions, impulse purchases).
Step 3: Create a budget for the Next Month
Now that you know your income and expenses, it’s time to set spending limits for the next month.
- Write down estimated costs for the next month based on past spending.
- Choose a budgeting style and allocate money for essentials, savings, and investments.
- Stick to the budget you’ve created.
Step 4: Adjust and Track
A budget isn’t static. It evolves based on your financial situation, inflation and cost of living.
- Monitor spending throughout the month.
- Adjust where necessary; unexpected expenses happen.
- Track expenses using budgeting apps, spreadsheets, or even a simple notebook.
What Budgeting Style Works for Nigerians? 3 Styles To Consider
Oluchukwu explains that the 50/30/20 rule, where 50% of your income goes to needs, 30% to wants, and 20% to savings and investments, sounds great in theory. But in Nigeria, it doesn’t always work.
Some people earn enough that essentials take up just 20% of their income. They should be saving and investing more, not forcing a 50% budget on necessities.
Others barely get by, with food alone consuming 70% of their income. Expecting them to squeeze into the 50/30/20 rule is unrealistic.
Budgeting isn’t one-size-fits-all. Finding a system that fits your income, expenses, and goals is key.
Here are 3 styles that work for Nigerians:
1. Percentage-Based Budgeting (50/30/20, 70/20/10, or Your Own Mix)
- This method helps you allocate money in fixed percentages. If the 50/30/20 rule doesn’t work for you, tweak it.
- For example, if you spend most of your salary on food and transport, a 70/20/10 split might work better — 70% for essentials, 20% for savings and 10% for wants.
- The goal is to create a budget that reflects your priorities and balances your spending.
2. Zero-Based Budgeting
- Here, every naira has a job. No idle money is left sitting in your account. You allocate all your income towards expenses, savings, debt repayment, and investments until there’s nothing left unassigned.
- If you earn ₦200K, you might allocate ₦100K to essentials, ₦50K to savings, ₦30K to debt repayment, and ₦20K to personal spending.
- This method helps you track where every naira goes and ensures you’re intentional with your money.
3. Pay Yourself First Budgeting
- Before spending a dime, you save or invest a fixed percentage of your income and then budget the rest.
- If you decide to save 20%, it goes straight into your savings or investments once you get paid. Then, you budget the remaining 80% for essentials and wants.
- This approach helps you prioritise financial growth and avoid the temptation to spend everything.
The key difference is in priority: percentage-based budgeting spreads your income into flexible categories. Zero-based budgeting assigns every naira a job to ensure nothing is unaccounted for. Pay-yourself-first budgeting prioritises saving and investing before anything else.
Budgeting with an Unstable Income
Traditional budgeting methods may not always work for freelancers or anyone with irregular income. Unlike salaried employees who can allocate fixed amounts, those with unstable earnings need a different approach: budgeting in reverse.
- First, calculate your monthly expenses. Know how much you need to survive.
- Save aggressively during your high-earning months. Keep extra cash for months when income is lower.
- Live prudently. Your earnings may fluctuate, but your core expenses should remain stable.
- This method ensures that even in low-income months, you won’t struggle because you’ve already planned.
So, Which Budgeting Style Should You Choose?
Start with a percentage-based budget as a guide, but adjust it based on your reality. If your expenses are low, save and invest more. If survival costs are high, prioritise essentials while finding ways to increase your income. The best budget is one that works for you.
Bottom Line
Budgeting is not about restrictions. It’s about control and clarity over your finances. Knowing exactly where your money goes helps you make informed decisions.
Following this step-by-step guide will give you a budget that works for your financial reality, helping you take control of your money and build a path to financial stability.
Click here to join the waitlist for Zikoko’s first-ever money event!
