How To Budget Wisely
How to budget wisely
We all know that we should get out of debt and fill a nest-egg with savings, but in reality that may seem impossible to do. With the current state of the South African economy it has become increasingly difficult to make ends meet, and many of us have no idea how to budget.
Fortunately, you don’t need to earn a huge salary to manage your money effectively. You will have to be committed to your long-term goals, and take the time to become more financially savvy, but with a little bit of discipline you will be able to improve your financial situation, with immediate results.
Here are 8 tips on how to budget:
1. Categorise your expenses and look at where you are spending money. You can do this in simple Excel spreadsheet, or download one of many apps available onto your phone. Look at how much you spend on your bond or rent, food, electricity, fuel, school fees, and so on. Don’t forget to add the “luxury” expenses such as eating out, salon treatments, clothing and travel.
2. Analyse your spending habits and look at where your problem areas may lie. Highlight the things that are a priority (such as insurance), and take a note of the sort of expenses that tend to leak into your credit card. For example, do you spend a lot of money on food, and then need to go into debt to pay for a priority item, such as rent?
3. Make a list of all your debt, such as credit cards and store accounts. Next, order them according to which ones have the highest interest rates. Make sure you put any extra money into paying off these cards first. This is called the “debt avalanche” method. These are the black holes your cash disappears into if you ignore them, and are an essential part of learning how to budget.
4. Look at places you can cut down on your expenses in your budget. For example, you might be able to get a lower tier in your cell phone contract, or perhaps choose a lighter DSTV package. All the little savings add up.
5. Be clear about your money goals and where you want to be one, five and ten years from now. Try to focus on the long-term and not on immediate gratification.
6. If you aren’t able to cover all your basic expenses, you may need to look at generating additional forms of income. You don’t need to suddenly take up waitering at night, however. It could be as simple as selling a few things you no longer use. There could be thousands of rands literally just lying around in your garage.
7. Work with percentages. For example, set aside 20% of your net salary for debt (and when this is paid off, into savings). This is not a set amount, so that when your salary increases, so does your savings.
8. Once you know where your money is coming in, and where it is going, it’s time to set clear boundaries and come up with a budget. Determine how much you have for each area of expenditure, particularly in non-fixed areas such as groceries. You may need to be very strict in the beginning, especially if you have a lot of debt to pay off.
Knowing how to budget will help you crush your debt and take charge of your financial future. The most important thing is to stick to your budgeting goals and not overspend. Many people don’t know how to budget and find it overwhelming. However, if you follow these few tips and do it one step at a time, you will soon be relieved to discover that it was much easier than you thought.
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