Budgeting in Turbulent Times

By Beenish Khurshid, San Francisco, California

Keeping one's finances straight on a normal day is difficult. In today’s world, it has become beyond challenging. Many of us have made more money than we ever have in our life, yet are further behind from our life goals than we ever have been. Most of us, though, are still recovering from job loss and instability during COVID.

The bar has moved, and we may never return to times like before. What was an expected life goal before may no longer be an option, and certain needs may no longer be possible to meet. We now live in an age where the top 1% of society takes home 25% (and growing) of our combined income. By hook or by crook, whether we try to avoid it or not, in our budgets today, we have to account for the tax we must pay to the ultra-rich elite.

We can be bitter about the situation, or we can be practical, and safeguard ourselves and our families, and prepare ourselves as best we can for an uncertain and turbulent future.

Start by listing your yearly income, your yearly taxes, and a list of all major monthly, weekly, and yearly expenses. Use excel, or Google Sheets as a tool. My budget outline looks something like this:

Copy the above table into a spreadsheet, and fill it with your own values (the formulas above will auto-populate with results!). The result should look something like this:

Things we haven’t included for brevity, but you should include: clothing, home maintenance, travel, and interest payments on credit cards.

Here, we see that the sample family is able to save about 25% of their income. That’s great! Depending on your life goals, you should save between 20% and 30% of your income every year. If you are living at home, try and save 50% of your income. If you have a lot of responsibilities, try still to save 15% in your budget. Here’s why: (1) unexpected expenses (2) inflation (3) missed items in your budget. Between these 3 items, you’ll see that 15% evaporates quite quickly, leaving you with nothing.

Hold on now! We have a basic budget together, but we still have two more important topics to cover to help you with your financial planning: (1) Budgeting major life expenses (2) Planning for inflation.

Budgeting for Major Life Expenses

We should all have life goals. It can be as simple as dying in peace, or as involved as a degree in law,and a family business to leave your children. For even the simplest of goals, financial preparation is necessary.

Step #1: Make a list of your life goals.

Here is a sample:

1. Buy a car

2. Buy a home

3. Pay for children’s college

Step #2: Estimate how much it will Cost.

You can use current costs as a base estimate, but the further away a goal is, the more you should estimate in your budget. This is both because of inflation, and price uncertainty. It is better to over-budget rather than under budget when you are unsure!

For example, if you want to buy a car today, you can budget $30,000. But if you want to buy a car 5years from now, you should budget closer to $40,000 to $50,000.

That is a big number! But don’t worry - you have time to meet these goals, and even if you don’t meet your goals, life goes on, and happiness can be found beyond the bounds of our goals.

Step #3: A plan to Save.

Step #4: Re-evaluate

Maybe you need to delay some goals. Maybe you need to lower your target. Maybe some goals need to be cut out all together.

$750 a month means saving $9000 per year.

We can see in our yearly budget above that we are just shy of saving this amount!

This means we need to tighten our belts just a bit to get us closer to our target goal.

Step #5: Reduce some Expenses

Here, we’ve decided to renegotiate our phone plan, and try to find a cheaper one. We’ve also decided to hold back on eating out, and reducing the amount of packaged foods we are going to buy. We could have also chosen to find a cheaper rental - but rent prices have shot up, and holding on to a rent-controlled rental is probably the most economically prudent choice.

Look for other areas to cut. You need only make small cuts. But make sure that for each cut you make in the table, you have a concrete plan on achieving it. It is easy to change numbers on a page, much harder to change numbers in your bank account! Don’t commit to so many small changes that your life starts becoming stressful. Instead, try to aim for a few, but impactful cuts.

Step #6: Find a Way to Improve your Income.

Let’s say we want to add back in our target of owning a home. We can’t possibly cut enough to save the $4000 a month we need to to buy a small property in the next 10 years. So let's see if we can find a way to improve our income.

1.Negotiate your Salary

The best way to negotiate your salary is to find a competing offer. Update your resume. Start talking to people. Look for openings. Apply. Prepare for the interview, and land offers. Even if your existing company doesn’t match the offer, you have a new, higher paying job that will help you reach your financial and family goals faster.

What if you are in a field that doesn’t have competitive salaries and lots of jobs? You’ll have to consider other strategies for raising your income:

A. Re-train in a different field

B. Start a side-hustle

These are some of the options you can try considering to help you reach your long term financial goals.

At the end of the day, our provisions are from Allah SWT. We have because he provides. All we can do is make dua, and tie our proverbial camel. Let’s do our part to become financially sound, and then put our trust in Allah.

Financial Literacy: Understanding Credit Cards: https://issuu.com/northwestmuslim/docs/spring-22/s/15062508

Cover Photo by Marissa Grootes on Unsplash