There are some people who are continuously broke from January to December every year because the money they earn is not enough to meet their needs. They find extremely difficult to reduce the expenditure to fit within the salary earned for fear of diluting their set standard of living. For example one may be earning a salary of US$ 15,000 per month but with expenditure over US$ 20,000 per month. The salary is short of expenditure by US$ 5,000 per month. One can only meet monthly budget of US$ 20,000 through having a monthly borrowing line of at least US$ 5,000.
Why do people live beyond their means?
A number of reasons have been advanced for people living beyond their means and the reasons include some of following:
- Lack of discipline for one to live within his or her means.
- Lack of plan or budget of how to spend the income
- Associating with bad company
- Limited knowledge on the cost of borrowing
- Easy access to credit through the use of credit cards
- Uncontrolled desires of consumer goods and services
- Competition with colleagues on the living standards for the sake of competition
- Addicted to gambling and other vices
Saving for investment and other purposes
You can only make savings from your earnings provided you plan to save by keeping your expenditure below your income. In order to save, the expenditure must be below the income level. If your salary is US$ 15,000, then your expenditure per month must be below US$ 15,000 to create room for saving the difference between income and actual expenditure. People save for various reasons including the following;
- To cater for old age
- For vocation
- To buy a car
- For medical treatment
- To buy a house and house items
- To pay school fees for self or children
- To care of emergencies
Author
John Muhaise Bikalemesa
Director: Big Drum Advisory Services Limited
john.muhaise@bigdrumassociates.com
