Finance Minister Enoch Godongwana has delivered his annual budget speech, now it's time for South Africans to get into action and start their own household budget.
Tyrone Lowther, head of Budget Insurance said: “Whether you are trying to get out of debt, save some money or simply stay in the green, a basic budget is one of the most underrated tools for gaining control of your finances, managing expenditure, saving and avoiding debt.”
The first step is decide which budget method suits your household and your lifestyle.
Here is a look at three budget methods:
The 50/30/20 budgeting rule
With this budgeting method, you need to allocate:
– 50% of your net income to needs like rent, groceries, and utilities.
– 30% to wants such as hobbies, vacations and dining out.
– 20% to financial goals (that is, savings and debt payments).
The 80/20 rule
With this budgeting method your income is divided into two groups:
– 80% of your income to needs, wants and debts
– 20% for savings.
The 70/20/10 rule:
Your income grouped into the following categories:
– 70% of your income goes to living expenses.
– 20% to debt payments.
– 10% to savings.
Now that you have decided which budget method you are going to use, you can draw up your budget.
Lowther shares nine tips to help you start your own budget:
– List all of your expenses as well as your monthly deductions and add them up against your income. If the value of the expenses is more than your income you need to take steps to reduce your expenses.
– Take a closer look at your expenses and decide which are the easier ones to decide and focus on them first.
– After you have trimmed-down your expenses, you can start directing any extra money you have into paying off your debts, starting with debts that have the highest interest rates first.
– Ensure that your budget has a goal such as paying off your credit card debt, a down payment for a car or saving for a holiday. Lowther said: “Working towards a goal provides direction, makes it more fun and delivers a sense of accomplishment when the goal is finally achieved.”
– When drawing up your budget it important that you are realistic about your goals. If you set the bar too high on your goals then the likelihood of you sticking to your budget is minimal.
– Being honest with yourself about your debt and your expenses will allow you to have a clear and realistic picture of your financial situation.
– Be careful when you are cutting down your expenses. While you may be tempted to cut expenses like vehicle and home maintenance or your monthly insurance premium, it is important to note that this may bring you some short-term relief but it may cost you more in the long run.
– Being smart when doing your shopping or stockpiling could save a lot of money every month. You can start by looking out for and taking advantage of discounts and specials which will allow you to stretch your rands and cut down your monthly shopping bill.
– Start your own emergency fund or boost the one that you already have. It’s recommended that you have three to six months’ worth of expenses saved up in your emergency fund. You can start small and slowly increase your contribution to your fund. Stay committed to your emergency fund and don’t withdraw anything from this fund unless it’s a crisis.
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