INLSA
Working out: Putting money aside for things like sport and exercise forms part of your fun budget which, in order to help balance your life and your finances, is essential.
We often end up in a quandary between saving and enjoying life.
We think we can either have an enjoyable life, or a frugal life with some savings in the bank.
We think that eating well and wearing branded clothing is the “good life” and that this opposes or prevents us from saving. Often we enter into debt to live this lifestyle.
Eventually we get into a downward spiral of debt and sometimes we lose control. What started as a promise to enjoy life ends up becoming quite miserable when we get bogged down with debt.
The most enjoyable life must be a balanced life. People are balancing their bodies with hot rocks these days but never seem to pay the same level of attention to balancing their finances.
In a recent course I conducted, the happiest delegate was a joyous and well-dressed woman who, as it later transpired, had the least debt.
This proved that enjoying life and saving were not poles apart; one can, and should, have both.
As we progressed through the course we saw that she balanced her life well. I noticed that people with a lot of debt in this group were less happy. This made me consider that joy and debt-free (or low-debt) living were possibly on the same side of the scale, with debt at the opposite pole.
But our happy delegate had, unfortunately, not saved enough. She had a lot of spare cash but saved nothing and should have at least been saving her (previous) car payment to later put towards a new car.
Her balance was thus somewhat out of proportion; enjoying life too much and not saving. Saving must be included in the balanced life as there is some room for that also.
She had about 30 percent of her income spare in a month and could easily save half of that – still leaving 15 percent of her income for an enjoyment fund.
And while she might be enjoying life now, when an unforeseeable instance such as home or car repair comes up, she may have to take on debt to cover her expenses.
To balance our bodies we may use lotions, potions and therapies but to balance our finances we should use a budget. Contrary to popular belief that we use a budget to record and control our expenses, we should use it also to record all the other elements.
In consumer theory, the equation restricting an individual or household to spend no more than its total resources is often called the budget constraint.
To balance our financial lives the budget should be separated into different categories. Not only will our finances be better balanced, but also our lives, when we create four different budgets as categories in our monthly budget.
1. The savings budget. I put this one first as it is the most important element. The family should decide how much is required for:
l Short-term savings (savings for weekends away, family meals, holidays and appliance replacements fall into this group).
l Long-term savings that will mostly include old-age provisions for income, travel and medical costs when we retire.
2. The spending budget is the main budget where we will include all the daily living expenses like rent, travel, car, utilities, food and education.
3. The debt budget will include all the credit card and other loan, furniture and clothing accounts.
4. The fun budget is where we calculate how much we want to put aside for family holidays (also in the first budget mentioned), meals and other fun stuff. I do motor racing and include that budget here.
You can include your sport or hobbies here. This is possibly the most important category that ensures we can also enjoy life.
The important thing is to balance each of the categories with each of the others and to realise that, according to the definition, we are constrained. A good guideline is to split it among the four categories as follows: 15 percent, 60 percent, 7 percent and 10 percent. As you see it does not, and should not, ever add up to 100 percent, to allow for extra expenses, licences, presents, emergencies and contingencies.
l Deon Hattingh is a certified financial planner and trainer. Visit www.making sense.co.za or e-mail deon@makingsense.co.za
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