According to Farzana Botha, Segment Solutions Manager at Sanlam Savings, a spending plan sounds so much more appealing than a budget.
Based on a Sanlam survey, 70% of South Africans are running out of money before the end of the month and only 18% are able to stick to a spending plan.
This means than consumers in the country should make better money management their number one New Year’s resolution.
Botha said that creating and sticking to a budget is the foundation of financial well-being, few people get it right.
“A budget may carry negative connotations of limiting or depriving us. Understandably, we are unlikely to stick with something that feels like a chore. Reframing our mindset from a budget to spending plan instead, may be the right way to positively shift our attitudes toward financial well-being,” Botha said.
Here are five steps for a financially savvy 2023:
Step 1: Understand the ‘why’
Whether a person’s goal is to make sure their salary lasts the month or save more towards retirement, they need to plan for it and to the plan.
Botha said: “Planned spending is a tool you can use to navigate the long month of January, and every month thereafter. Remember that setting the tone for a financially savvy year starts in January.”
Step 2: Get started
According to Botha, a spending plan details what people need to do with their money each month to meet their financial goals. They can do this by knowing exactly what they you earn and how much they owe.
It is important to draft a list of monthly expenses that includes both fixed expenses such as rent and car payments as well as expenses that fluctuate such as entertainment.
Then they can calculate what comes in every month and what needs to go out.
Step 3: Know your needs from your wants
A “need” refers to something that is vital, such as your home and food for you and your family while a “want” is something nice-to-have, like that daily take away cappuccino or a takeaway lunch at work.
“It is important to realise the difference and plan for each accordingly. A good exercise is to scan last month’s bank statement and divide all your expenses into what you spent on a need and what you paid for a want,” Botha said.
Step 4: Kick the bad habits
Identify bad spending habits such as daily cappuccino on the way to work or impulsive online shopping sprees and then develop a plan to overcome them.
Looking through your monthly bank statements should give you clear idea of expenses that you can do away with and which bad spending habits you need to get rid of.
There are apps available that will help you monitor and track your expenses.
If people are unsure about where to start then they should speak to a financial adviser.
Step 5: Find a budgeting method that works for you.
People can choose between the the following budgeting methods:
– 50/30/20 rule: 50% of income should go to needs, 30% to wants, and 20% for saving and debt repayments.
– 80/20 rule: 80% of income is for needs, wants and debts while 20% is strictly allocated for savings.
– 70/20/10 rule: 50% of income goes to needs like rent, groceries, and utilities; 30% for wants such as hobbies, holidays, and eating out; 20% to your savings.
Sebastian Alexanderson, founder and debt counsellor at National Debt Advisors said that it is much easier to make use of the above budgeting methods if you develop them to suit your particular lifestyle.
“You can do this by assessing your financial situation and identifying where improvements can be made,” Alexanderson said.