I’ve been saving for two years already, but with the rand at R10.69 to the dollar and almost R18 to the pound, the prospect is daunting.
So it’s to the budget drawing board for me. What I know from previous experience is that it’s essential to define the goal. It’s not good enough to say “save more”. That’s as helpful as “lose weight”. You need to be precise. In other words reduce debt by R500/month; cut spending by R1000 or save an extra R2000/month.
To achieve any of these goals – which are usually inter-linked – you have to have a budget. Do you ever shake your head and wonder where your money went? I do – all the time. To understand where your money vanishes each month you have to get a handle on your cash flow (income and expenses).
Start by calculating you or your family’s monthly net income (gross income less tax). If you work for yourself, calculate your income over the year and divide it by twelve.
Then, add up all your fixed expenses. These should come in at 50–60% of your net income. I include rent/bond, car repayments and maintenance, municipal rates, education and student loans in this category.
Now pay yourself. In other words, see retirement saving and other saving as a set expense that must be met. Included in this category is building an emergency fund, reducing debt, saving for a deposit on a home and for retirement. I created an additional heading in this category called “holiday fund”. Your savings goal (excluding the holiday fund) should be 20% to 25% of net income.
Next, add up all your variable expenses, like food, entertainment, personal grooming, home furnishing, pet needs, the list goes on. Ideally these should consume 20% to 30% of your income but these days that is difficult.
Lastly, deduct expenses from net income. Your final equation should be net income less fixed expenses less savings less variable expenses. This is where the rubber hits the road. You will either be in surplus, break even or deficit.
With my holiday fund added into my budget I am definitely in deficit. If you find the same, don’t despair. This is the point of the exercise – so that we can do something about it!
I need to find ways to spend less. The next step is to re-examine monthly expenses. Are there any obvious vices? If you love to buy a coffee every morning, start making your own at the office.
What else can be cut? My Virgin membership is going. That’s about R260/month right off. Clothing, shoes and trips to the hairdresser will be limited.
In my case groceries are a target. I plan to draw up a weekly menu and shop according to a list; impulse buying can account for 20% of your grocery bill. And shopping to a menu doesn’t mean heading to Woolies for lasagne.
Carefully consider the cost of convenience; the more convenient the item, the more it will cost. Is it worth paying more for grated cheese if you can do it yourself?
Also, the more organised you are (that weekly menu), the fewer times you have to step into the supermarket, thereby reducing impulse buying and saving time.
Shop alone if possible. Marketers spend a lot of money convincing kids to buy their cereal.
Cut out take-aways. In my case that means no fried fish and chips from a hole in wall in Kalk Bay! And there is no doubt paying with cash makes you more aware.