A Budget is a quantitative plan for acquiring and using resources over a specific period. This helps in managing money and making informed financial decisions.
The purpose of a Budget is to build financial independence and financial freedom.
There are many budgeting tools on the internet.
Excel has a template which is quite useful.
In a recent survey from Unisa only 32% of South African Households prepare a monthly budget
Reasons why they don’t:
17% have too little money
9% have sufficient money and feel they don’t need to
47% don’t know how to
15% say it’s too boring
12 % site other reasons
There are 7 basic principles that need to be considered for Budgeting:
Assess your income
Track your expenses
Set your financial goals
Good and accurate differentiation between ‘’needs ‘’ and ‘’wants””
Create a budget that’s realistic
Create an Emergency Fund
Review and readjust regularly to stay in line
Assess your income
Salary, Interest, Dividends, Pension, Bonus
Tracking your expenses
Start with tracking your expenses first.
It’s best to do this over 3 or 4 months for a more accurate representation of actual expenses. The most accurate way of doing this would be to draw a 3-month bank statement and a 3-month credit card statement thereby you will be able to get a true amount of what you have spent in the preceding 3 months including any cash withdrawals you have made.
Include categories such as:
Housing
Groceries
Transport
Utilities
Repairs and Maintenance
Insurance Long and Short term
Education including School Fees, University Fees, Books, Uniform, Stationary, Tuition
Entertainment including Netflix, Spotify, DSTV
Savings
Cell phone, Fibre costs, Data costs, Internet Costs
Medical Expenses over and above your medical aid payments
Bank Charges
Domestic / Garden assistance
Loan repayments
Pet costs
Credit card debt
Provisional Tax payments
Gifts /Charity
Setting Financial Goals
Strive for the following realistic financial goals:
Deposit for a house or second home
Children’s education including University Education
Savings to achieve a strong, solid Emergency Fund
Vacations local/international
Retirement provision (according to the latest stats only 7% of SA retirees will be able to retire comfortably)
Eliminate credit card debt - Aim to settle your credit card at the end of every month
Needs versus wants - NB to differentiate
Make the decision on what you need vs what you want, eg:
Holidays and Weekends away
IT Connectivity, Upgraded cell phone
Fibre
New car
New furniture and Appliances
Cell phones for Children
Create a realistic budget for you and your Family
Budgeting is not a one size fits all, each family will have different requirements
Emergency Fund
An Emergency Fund is crucial in uncertain economic times like these.
This should be equal to around 6 months of your Annual Salary minimum for unexpected expenses. 12 Months would be better, but the important part is to start saving for your Emergency Fund Month by month. The more stable your income and household are, the less you need in your emergency fund. In these uncertain times it would be prudent to commence with a monthly amount and build from there. This is going to take discipline and time but will come with the reassurance that if something unexpected happens you are well prepared. Remember that saying of, it doesn’t matter what you earn, it’s what you get to keep.
Review and adjust on a regular basis
Your family needs and dynamics will change depending on what stage of life you are at.
Budgeting is dynamic and ever changing. Try to be as accurate as possible for best results.
Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track.
Few elements of your budget are set in stone: You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason, get into the habit of regularly checking in with your budget following the steps above.
Don't jeopardize your finances and retirement while helping your child. It may be tempting to pay your child's student loans or cell phone bill, but do so only when it doesn't negatively impact your own plans. If you make big sacrifices for your child now, you may find yourself facing your own financial challenges in retirement. Remember, you are working toward a major goal: financial independence and financial freedom.
Happy budgeting!