Many South Africans are up to their necks in debt and live from pay check to pay check. There is, however, a solution: making and maintaining a personal budget.

Why budget?

A personal budget or spending plan gives you the opportunity to get a handle on your finances and get out of the trap of living from pay check to pay check while sinking deeper and deeper into debt.

What you need to know

A budget is only successful if it is realistic. Before you start you will need to know the following:

    1. Total monthly net income, your final take-home pay after subtractions and anything else that brings money into your bank account
    1. Total monthly essentials (rent/mortgage, utilities, cell phone bills, groceries, clothing, car maintenance/payment, debt repayments, medical insurance, childcare, etc. This category should also include automatic savings deductions.
    1. Total monthly non-essential, nice-to-have expenses (things that you spend money on every month like going out to eat, buying gifts, etc.
    1. The leftovers. This is the money left-over each month after subtracting all your expenses from your income.

Four steps to follow

With a budget in place, you will know exactly how much money you have coming in, and how much is going out. It also makes it possible to save for a rainy day, plan for big expenses and to squeeze all you can from your hard-earned income instead of just borrowing more money.

Step 1 Determine your total, average monthly expenses

If you have never done this before it may take a month or so to first collect every receipt and utility bill and make a note of each purchase you make. Also, include the purchases you make with a debit or credit card. Divide these payments into categories (eg groceries or entertainment) to determine an average amount of expenses per month for each category. If you pay annually for certain services or items, simply add up the total annual cost and divide it by 12 to get to a monthly amount. Do the same with your non-essential, nice-to-have expenses.

Step 2 Enter this information into a database

Use a spread sheet or use an online budgeting software programs to capture all the information you have gathered. These programs make it much easier to develop a highly adjustable and sustainable long-term budget.

Step 3 Check out the results

The results will show you if you are within your income limit and also where every rand is going or if you are spending more than you are making.

Step 4. Make adjustments

Don’t despair if you find that you are spending more than you are earning. After all, a timely warning is one of the advantages of using a budget. See it as an opportunity to make some adjustments to your monthly expenses in order to live within your means. Here are a few practical tips:

    • Use cash not cards. Draw only enough cash for one week and decide beforehand that it is all you can get. It’s much easier to turn down a R500.00 pair of shoes when it will take the last of your week’s cash than it is when you just have to swipe a credit card.
    • Start a savings or emergency fund and treat it as a recurring essential expense. If you find that you keep dipping into your savings, set up an account with early withdrawal penalties.
    • Get rid of your debts one by one. Take the card or account with the highest balance and interest and pay as much as you possibly can on this one while only paying the minimum amount on the other cards or accounts. When you have paid off this card or account, do the same with the next highest.
    • Keep on tracking and monitoring your expenses; not only will it help you stick to your budget but it will also help you identify luxuries and non-essential expenses that you can cut and save on.
    • Try to find additional revenues of income such as week-end jobs to help you get out of debt and balance your budget.

 

Sources

Aquire, S. You need a budget 3 review (YNAB) – ultimate personal budgeting software. Retrieved from: http://www.moneycrashers.com/you-need-a-budget-review-ynab/
Budgets are sexy…when simple. Retrieved from: http://www.lifeaftercollege.org/blog/2009/08/20/budgets-are-sexy-when-simple/
Creating a budget. Retrieved from: https://www.bankofamerica.com/deposits/manage/creating-a-budget.go
Khalfani-Cox, L. Six secrets to create a budget you can stick with. Retrieved from: http://www.yourmoneycounts.com/ymc/tools/articles/six-secrets-to-create-a-budget-you-can-stick-with.html
Siddons, S. 10 tips for staying on budget. Retrieved from: http://money.howstuffworks.com/personal-finance/budgeting/10-tips-for-staying-on-budget.htm
Steps to creating a personal budget. Retrieved from: http://www.soundvision.com/Info/life/pfplan.asp
12 steps for how to make a budget – personal budgeting tips for first timers. Retrieved from: http://www.moneycrashers.com/how-to-make-a-budget/