When we talk about budgeting, does your budget include your future goals? Although many of us have budgets, you will find that your budget is more centred on the current needs. Since we are planning for the new year, it is important to have a budget that accounts for our future needs. It will help with decisions around your earnings, savings and investment goals. 

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Budgeting for the New Year: How to Identify Your Future Needs

Step 1: Estimate Your Income

As usual, knowing where you stand, income-wise, helps with most, if not all, of your financial planning. So, let’s start with your earnings. 

How much will you bring in in the coming months or year? Do you have a salary increment or lost any income source? How does the change in your income level affect your financial goals for the coming year? Ensure you consider all income sources, including bonuses, dividends, and interest earnings you might receive. 

Step 2: Planning for Your Savings & Investments

If you have already mapped out your financial goals, you know how much you need to save and invest for each purpose. As you budget for the future, the aim is to weigh where you are and where you want to be. Are you closer to your goals, or does anything need changing? Do you have new goals you need to save for? Are there non-performing investment assets that need liquidation? 

For example, if you were saving for a car and the price increased due to inflation, would you extend your timeline or save more each month? Or, perhaps, your emergency kitty is fully funded. So, how much were you setting aside, and what other investment and savings accounts can you channel it to? 

Remember, savings and investments should take up at least 10% to 20% of your income. So, as you plan for future needs, allocate money for savings and investing first and plan your spending around the remainder. 

Step 3: Estimating Your Expenses

If you have been budgeting, estimating your monthly expenditure will be easy-peasy. Refer to your budget and confirm how much each category takes up. If your budget is annualised, you are even better positioned to see and compare your expenses in a month-to-month full-year spread. 

Step 4: Adjust for Inflation

Considering the raging inflation rate, I am sure you’ve noticed how the cost of everything has gone up in the past few months. That means your shilling is worth less than it was in the last year. Even if the inflation rate slows down, it will still be there. So, as you plan, the aim is to factor in this to see how your expenses and income will be affected. 

What’s the effect on your expenses? Your rent might go up. School fees for kids or your education might go up. Fuel prices will be affected, increasing your transport costs. Groceries, food and household goods have price increments, costing you more. In the end, a monthly household budget of KES. 10,000 might have gone up to KES. 14,000. 

On earnings, your monthly income will be worth less. Imagine you were earning KES. 50,000 after tax. If 20% of this went into your savings and investments, you would have KES. 40,000 left for your expenses. So, if your overall household expenses increased from KES. 10,000 to KES. 14,000, you are forking out an extra KES. 4,000 from the same salary to meet your needs. 

Step 5: What’s Next?

A short-term remedy would be to cut off some expenses, like reducing how much you spend on wants. You may have already done this, and there is no expense you can squeeze any further. That’s understandable. One solution is to shop in bulk from wholesale shops. The other solution is to get a pay raise or an extra source of income. 

First, if you are lucky to have a yearly salary increment or negotiation leeway, ensure you negotiate with key statistics in mind. That includes the pay range in your industry and the inflation rate. Inflation directly impacts your earnings. If you do not get a salary raise or get less than the inflation rate, your income will be worth less every year. That makes meeting your expenses, savings, and investment needs more difficult. 

What happens if you do not have a yearly increment? First, you can negotiate for better pay or benefits either way. Most employers have annual employee reviews, creating an excellent opportunity to showcase performance and skills. If it doesn’t work, it’s time to look for better employment opportunities and side hustles.