Budgeting means putting together a detailed plan of how much money you make (income) and how much you spend (expenses). This will help you in knowing your financial status, as you can work out how much you are left with after all the fixed monthly instalments are paid. Whatever is left over should be saved towards a goal.
Sugendhree Reddy, Head of Personal Banking at Standard Bank shares some key steps to consider when tackling your budget:
Importance of prioritising expenses
When drawing up your budget make sure your top priorities are listed first. Top priorities on any expense list are food and shelter – this could include your rent and levy or bond repayment. The next in line are essential utilities like water, electricity and transport. Insurance policies such as life cover, funeral cover and society scheme contributions should be accounted for too.
Savings should also be a key consideration. It is worthwhile determining how much you are able to put away and allocate a fixed amount every month.
Once the budget is drawn up it is important to stick to it by:
- Planning for financial emergencies
- Allowing yourself to budget for things you love to do
- Setting financial goals
- Controlling spending
Plan for Financial Emergencies
It is almost impossible to plan for emergencies, however a savings fund towards these is ideal to cover any unexpected expenses. Getting life and funeral cover will also be a good idea to ensuring you and your loved ones are covered.
Budget for the things you love to do
The rule of thumb of someone who handles money wisely is, don’t spend money you do not have. The key to budgeting is planning ahead and saving where possible.
You work hard for your money, so you deserve to spend it on the things you love and enjoy like a holiday, a deposit towards a car, etc. Instead of taking out loans to fund the things you want, rather save throughout the year as this will enable you to enjoy what you love with peace of mind and without having to incur extra debt.
Setting Financial Goals
Setting financial goals is an important step in protecting your family’s future. Whether you want to save money for your child’s education, a new appliance, or your retirement, set realistic goals and stick to them. It is always better to save than to go into credit, as credit is expensive. Remember to control your spending by paying for your basic need expenses before you spend on luxuries. Saving and putting money aside for these specific goals will ease financial pressure.
Controlling your spending
There are some handy tips to keeping you on track with your budget:
Ditch the denial
The best advice is to ask yourself “what and if there is anything or anyone influencing your money spend” and deciding on the best way to use your cash. Weigh up your income versus your expenses and ensure that money spent does not exceed money received. Even though obstacles such as not saving and taking on too much debt prevents us from building wealth, the little things we do on a daily basis, such as buying things we are not able to afford, has an impact on our finances.
Keep a daily log of everything you spend
This will help you identify your spending habits and give you a proper idea of areas where you can save.
Pay your debt smartly
Many people do not understand that being in debt has two costs, the amount of interest you pay each month and the lost opportunity cost of not saving that money. By making small adjustments to your budgets and pouring any extra money into your debt to settle it faster, you can maximise windfalls and make your money work so much harder. Once your debt is under control and you have a savings plan in place, you are well on your way to building some significant wealth.
Distinguish between wants and needs
Be honest and make a list of your expenses with the necessary items high on the list and the luxuries at the bottom. And when your budget runs out before getting to the luxuries, it is better not to purchase these luxuries on credit but rather go without or save up for them.
Scale down
If your expenses exceed your income every month, try to see where it is possible to cut on unnecessary spend.
Update your budget regularlyYour finances are affected by many things such as the economy, interest, an annual increase in your salary or unforeseen circumstances such as an emergency, which all affect your financial situation. The key is to try save a little bit extra every month so that you don’t impact your pocket. It is wise to update your budget and mindset accordingly.
Stick to it
Much like a diet, a budget only works if you stick to it. Sure, you can fall off the wagon every now and then, but it is important to get back on it!
