This week we start a series of six articles written specially for people who want to learn basic skills about how to look after their money, and understand the concepts of such things as saving and borrowing. In this article, we explain how you can draw up a budget, and how it can help you save money.

To take control of your financial future, you need to control your spending. To do this, you need to know exactly how you are spending your money each month.

Your needs cost money. Some of these needs are more urgent than others, and some of them are unavoidable.

Generally your income is limited, but faced with unlimited needs, you often have to choose which needs to satisfy with the resources at your disposal.

You can only make proper choices about which needs are priorities if you plan your income and expenditure in a systematic way and control the urge to spend more than you can afford.

The best way to ensure you have enough money to pay for your expected expenses is to compile a cash flow budget. A cash flow budget is one of the most important documents you can draw up and holds the key to the successful management of your finances.

The aim of a budget, or cash flow plan, is threefold:

* To tackle your debt systematically;

* To control your spending; and

* To build wealth.

Your budget

A budget is normally drawn up for a 12-month period, and you must include all possible income and expenses.

You should also allow for unforeseen expenses.

To prepare a budget or cash flow plan, follow these steps:

* Record all expected income (including your salary, grants, bonuses, overtime and freelance work) for the next 12 months. If your income is paid on a weekly basis, convert it to a monthly income by multiplying your wages by four or five, depending on how many weeks there are in the month;

* Write down all the costs you expect for each of the 12 months. This is quite tough, but list every cost you can think of. It is also important to list the cost in the month in which the payment will be made. For example, January's services may only be payable in March, so enter the services expense in the month of March on your budget;

* Determine the difference between your income and expenses for each month by subtracting your total expenses from your total income. This will tell you how much cash you can expect to have at the end of each month.

If you spend less than you earn, you are doing well and can perhaps think about putting the extra money, or a portion of it, away for saving. But you have a problem if you spend more than you earn. In this case, you can do one of two things: either earn more (by doing extra work, for example, or looking for a new job that pays more) or spend less; and

* Include items in your budget for which you want to save. For example, for your children's education or for a house.

Once you have compiled your budget, it is important to start using it. A cash flow plan does not serve any purpose if the information it provides is not used.

While a cash flow plan is rarely absolutely correct, it is important to know to what extent you were right or wrong so that you can make adjustments to the rest of your projections. Only then does the exercise serve a useful purpose.

To put the cash flow plan to work, you need to do the following:

* Try not to spend more than the budgeted amount on each item;

* At the end of each month, the actual expenses for the past month should be compared with the estimates. There will always be small differences, but if the differences are large you should investigate the causes and, if possible, eliminate them; and

* If there is a difference between your budgeted and actual expenditure for three months or more, you will have to revise your budget for the rest of the 12-month period, because you were probably unrealistic about your budgeted expenses.

Adjusting your budget upwards for a particular item (for example, your monthly food bill), may mean reducing other less urgent expenses, such as entertainment (for example, going to the movies).

You can trim your food bills by, for example, eating fewer luxuries or buying from a cheaper store. If your electricity bill is high, you could shower instead of bath, and turn down the temperature of your hot water cylinder;

* Consult your budget at least once a week; and

* If you have budgeted to save money, make sure you put away what you plan to save in a separate account.


Once you have cleared your debt, you will have money left over each month. It is important not to spend this money on something else and run up debt again.

Having extra money available is the perfect opportunity for saving, possibly for your retirement, children's education or for a deposit on your own home.

Put money away every month where you can earn the best rate of interest. Shop around to find the best bank account in which to place your savings every month. Ideally you want an account that pays a good rate of interest and does not charge you monthly fees, otherwise the fees will eat into your savings.

A word about debt

Debt is the biggest stumbling block to building wealth. Because of the high interest rates charged on debt, you end up paying back far more than you borrowed.

The other problem with debt is that the longer you take to repay your debt the more it costs you.

You should make your main financial aim to get rid of debt. You can do this by ploughing any spare money you have towards paying off your debt.

The key is to start somewhere and that may mean cutting back where you can, and using that money, no matter how little it is, to repay your debts.

It is a good idea to start by repaying the debt on which you pay the highest interest rate. Typically this would be, in this order, cash loans from a "mashonisa" or loan shark, credit card debt, overdraft, hire purchase agreements, store cards, car loans and, lastly, home loans.

You pay as much as 22 percent interest a year on purchases you make on your credit card. Home loan interest rates are the lowest. The base home loan rate is currently 14.5 percent a year and, if you are a good customer of the bank, you may qualify for a discount off this rate.

Some debt, such as a home loan or a car loan, is unavoidable because it is practically impossible to buy a car, and especially a house, for cash. But you should negotiate the best interest rate you can when making these loans and try to pay in extra when you can.