How to build realistic budget that fits Nigeria in 2025

As a popular musician once said, “This is Nigeria!”

Well, if you have lived in Nigeria for at least five years, having a budget plan for your income is among the ways to manage your finances.

This is due to price fluctuations and inflation’s effect on the country’s goods and services prices.

Having a realistic budget that covers essentials such as transportation fare, feeding, savings, etc., can be overwhelming, especially if you do not know how to create one. Not to worry! This guide will explore ways to build a budget that fits the Nigerian lifestyle.

Highlights

●Understand Your Income and Set realistic budget Expectations

●Track Your Expenses

●Set Financial Goals

●Create Your realistic budget

●Address Debt Management

●Save for Emergencies and Investments

●Review and Adjust Regularly

1. Understand Your Income and Set Realistic Budget Expectations

The first step in creating a budget is determining how much money you earn each month. While this might seem straightforward, earning income in Nigeria can often be unpredictable, with multiple sources and varying amounts.

Whether you receive a salary, operate a side business, or rely on allowances, you must know the realistic monthly amount you can count on.

Here’s a way to go about it:

Identify all your income sources: List every income stream you have, such as your primary job, freelance work, business earnings, or remittances. Be sure to track both steady and irregular income.

Consider income variability: Variable incomes are ordinary in Nigeria. If you receive inconsistent payments, take a cautious approach when estimating your monthly income. For instance, use the lowest amount you’ve received in recent months, significantly if cash flow varies. This will help you avoid the risk of overspending and prevent financial strain.

Include passive income: If you earn passive income from rent, dividends, or investments, invest this into your budget. Passive income can provide a financial cushion, helping you cover necessary expenses or save for future goals.

Be realistic: Avoid inflating your income expectations. If unsure, use a conservative estimate to prevent overspending and potential budget shortfalls.

2. Track Your Expenses

After determining your income, the next step is to track and categorise your expenses with a personal bank account such as the Personal Banking account.

This is important as it enables you to understand your spending habits and uncovers potential savings opportunities.

By organising your expenses, you can point out areas where you might cut back or shift funds toward more pressing needs.

Group your expenses into essential and non-essential categories. Essential expenses cover necessities like housing, food, transportation, utilities, and healthcare, while non-essentials include dining out, entertainment, and luxury purchases.

It’s also important to consider unique expenses, which include:

Family support: Many Nigerians regularly contribute to the financial well-being of extended family members, such as paying for siblings’ education, supporting elderly parents, or assisting with major social events like weddings or funerals.

PSocial events and celebrations: In Nigeria, large gatherings such as weddings, birthdays, and festive seasons require substantial financial preparation. Be sure to factor these into your budget to avoid unexpected costs.

Use tracking tools: It’s essential to track your spending, whether through budgeting apps, spreadsheets, or even traditional pen and paper. Numerous mobile apps can help you categorise and monitor your expenses, providing clear insights into your financial habits.

Look for areas to cut back: Once you’ve tracked your spending, check out areas where

you might be overspending. Reducing your expenses there is advisable if you’re spending too much on social activities or non-essential shopping.

3. Set Financial Goals and realistic budget

Once you have a clear picture of your income and expenses, the next step is to set financial goals. These guide your budget and help align your spending with your larger goals. Your financial goals include paying off debt, saving for a home, investing in a business, or building an emergency fund.

Short-term goals: You aim to accomplish these objectives within the next few months to a year. Examples might include creating an emergency fund, paying off a credit card, or purchasing a new phone.

Medium-term goals: You plan to achieve these goals within one to five years. This could involve saving for a wedding, putting money aside for your children’s education, or purchasing a car.

Long-term goals: These goals typically span five years or more. Examples include building a retirement fund, buying property, or launching a family business.

When setting your financial goals, ensure they are SMART (Specific, Measurable, Achievable, Relevant, and Time-bound). This framework will keep you on track, ensuring that your goals are clear and attainable while keeping you motivated throughout the process.

4. Create Your realistic budget

With a clear understanding of your income, expenses, and financial goals, the next step is to create your budget. It’s essential to keep the following in mind when making a realistic budget:

I. Apply the 50/30/20 rule: This is a widely recommended realistic budget method, and it involves dividing your income into three categories:

50 per cent for essentials: This covers unavoidable expenses like rent, food, utilities, and transportation—necessities for daily living.

30 per cent for wants: This portion is for non-essential spending, such as dining out, entertainment, and shopping.

20 per cent for savings and debt: You should aim to channel at least 20 per cent of your income toward building savings or reducing debt. You can adjust this amount based on your priorities.

II. Stay flexible: While the 50/30/20 rule is a helpful guide, you may need to adjust the percentages. For example, you might allocate more to family support or prioritise saving for a business venture over other goals.

III. Plan for irregular expenses: Nigerians often encounter occasional costs like weddings, festive celebrations, and family support. Realistic budget for these is essential. Set aside a portion of your monthly income to cover these unexpected expenses.

IV. Try the envelope system: If sticking to your realistic budget is a challenge, consider using the envelope system. Here, you can divide your cash into separate envelopes assigned for specific expenses (e.g., groceries, transportation). When the money in an envelope runs out, you stop spending in that category for the rest of the month.

5. Address Debt Management

Unfortunately, many Nigerians face challenges with debt, particularly consumer loans, credit card balances, or borrowing from friends and family. If not managed realistic budget carefully, debt can disrupt your budgeting process.

Prioritise high-interest debt: Start by paying off debts with the highest interest rates, such as payday loans. These types of debt accumulate interest quickly and can become more expensive over time.

Negotiate with lenders: If paying off a loan in full isn’t possible, try negotiating with the lender. You may be able to secure better terms, such as extending the repayment period or reducing the interest rate.

Avoid accumulating more debt: To prevent adding to your financial burden, avoid taking on additional debt unless necessary. Instead, prioritise saving and sticking to a realistic budget that allows you to live within your means.

6. Save for Emergencies and Investments

When building a realistic budget, one of the most critical aspects is setting aside money for emergencies and investments.

These two elements safeguard your financial future, allow you to manage unexpected events, and take advantage of growth opportunities.

Emergency fund: In our current economy, income can be unpredictable, and unexpected expenses like medical emergencies, family obligations, or natural disasters can arise. Having an emergency fund helps ensure that you’re not forced into debt.

Ideally, you should aim to save at least 3-6 months’ worth of living expenses in an easily accessible account. This fund will serve as a safety net in case of job loss, medical emergencies, or unexpected expenses.

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Investments: Once your emergency fund is established, consider directing funds into investments that can help build wealth over time. This might include stocks, real estate, or small business ventures.

Keep in mind that investing is generally a long-term strategy. So, be patient and avoid making impulsive decisions based on short-term market fluctuations. Choose investment options that align with your long-term financial objectives.

7. Review and Adjust Regularly

A realistic budget isn’t something you create and then forget about; it requires ongoing attention and updates. Changes in your life, such as a new job, relocating, or starting a family, can affect your financial situation.

Revising your realistic budget frequently helps instil financial discipline. By constantly monitoring where your money is going, you become more aware of your spending habits and are more likely to stick to your financial plan.

Conclusion

Building a realistic budget that fits an ideal lifestyle for Nigerians involves understanding their income and expenses while factoring in the country’s unique economic conditions.

With careful planning, tracking using a reliable bank account such as a Personal Banking account, and regular adjustments, you can create a budget that will set you on the path to long-term financial success.