So many of us have made a resolution to be more savvy with those precious rands and cents in 2018; but as is usually the case, sticking to a great plan is easier said than done. And when money is already tight, where do we begin anyway?
1. Know your income
The first step to creating a realistic budget is to start with the bigger picture, and work into the detail from there. At this stage, you’ll want to know what your gross income is (pre-deductions monthly earnings), your net monthly income (take-home earnings), where your deductions are going, and how much they are (i.e. tax and retirement).
2. Know your current monthly expenses
You’ll also want to know where your money is going. Divide your expenses into 3 sections: fixed costs (debt repayment, medical aid, rent/mortgage, transport costs, etc.); discretionary costs (variable costs like clothing expenditure, groceries, odds ‘n ends); and savings.
3. Analyse your monthly spending and set realistic savings goals
Now it’s time to scrutinise your spending habits in close detail, and find those areas in which savings can be made. This includes looking at your grocery till slips – can you substitute more chicken for beef, for example? Can you cut back on milk? Can you buy it cheaper online? Everything adds up. At this point you may also decide to channel your savings away from discretionary expenditures and into fixed costs, thereby increasing your monthly debt repayments (this will end up saving a considerable sum over time as interest adds up quicker than many think).
4. Establish your budget
You’ve gone through the details and now have hard numbers in front of you. Great! With these in hand, you can easily begin the process of setting out a budget. Be realistic (in all likelihood you won’t be able to cut your grocery bill in half), and don’t worry if you have to run through the budget creation a few times over before it’s ready to fully implement. Some trial and error is part of the evolutionary process.
5. Track your progress
It’s amazing: by just keeping an eye on how your spending is faring in comparison with your budget plan you become conscious of how far even a little discipline can take you towards your goals. For many of us, getting into the habit may take a bit of practice, but once you’re there you’ll certainly be happy you’ve put in the work. Whereas a simple note book with dates, amounts and type of expense will allow you to create a solid monthly spreadsheet in Excel, those comfortable with some help from an app can use the South African My Life Planner or the Android-based Easy Home Finance.
It – quite literally – pays to think like a zealous accountant in an economy that really isn’t as strong as it could be. Better management of your personal finance means less stress, more smiles, and, probably, a piggy bank with enough savings to see you through a rainy day or two.
