Uncertain times call for clear decisions around how we spend our money. One of the first steps when creating your financial plan; whether monthly, by quarter or with a more long-term view, is to monitor your spending habits, and the simplest way to do this is to budget.
A budget is simply a means to track your spending. The more detailed your budget, the better. You must understand the money you have coming in and where your money goes before you can start mapping out how to achieve your financial life goals. Once you know where to cut back, you can start budgeting better and stretching your Rands to all the right priorities.
Here are 8 steps to help you with your budget.
Make a list
Start by making a list of your income and expenses.
Income: This is money you get, like your salary, any rental income, allowances or extra cash from freelance work.
Expenses: This is money you spend on goods or services you must paid for. This includes all your regular monthly expenses such as rent/bond payment, municipal rates and taxes, groceries, transportation (petrol or bus and taxi fare), entertainment, school fees, insurance policies and loans repayments.
It’s good to know how much money you have coming in and how much money you’re spending. Using your bank account statement as reference is a tangible way to help you jot exact figures down.
Track your spending
Look through your budget and all your receipts. Carefully review where you’re spending a lot of money. Some expenses fluctuate due to interest rate increases or decreases, and other expenses may only be for a short period of time. Can you find an expense that you can cut or reduced?
Curb the bad lifestyle habits
Whether it’s alcohol, tobacco or takeaways, bad habits can be expensive. They say, “idle money is gone money” and this type of cash can end up wasted on activities and items that do not reap much benefit to your financial goals.
Look at cutting back on those and watch the difference that it makes to your bank balance.
Share the responsibility
Sit down with your family and look at the household expenses. Working together, you can set financial goals and then figure out what ‘nice-to-haves’ you can cut back on. It is never too early to start speaking to children about good money habits, and once the whole family adopts the
Pay your debt
We don’t need to tell you that the interest rate on debt is incredibly high. It is also a volatile space because the economic factors influencing it aren’t in our control. If you have credit card debt or a clothing account, pay as much as you can on it every month and you’ll save money in the long run. A little extra can go a long way.
When you draw up a budget, try to allow some extra money for those unexpected expenses. Ever heard of a “rainy day account”, these are precisely useful for unplanned and often unavoidable expenses. Flexibility in budget management also means being gentle on yourself if you go over your budget, sometimes.
It’s nice to dream about winning the Lotto and solving all your financial worries overnight, but don’t let this distract you from the real world. Rather work with the money you do have, put plans in place to grow your money incrementally through the right avenues, and avoid making plans with money you don’t have.
Track your progress
When you’re budgeting with a specific goal in mind, such as saving for your retirement, don’t underestimate the value of keeping track of your progress. Budgeting is an ongoing process that changes and grows as your financial goals change so it’s important to stay informed of how far you’ve come and the steps still ahead. Don’t be afraid of speaking to a financial adviser who can help you assess your finances and take the stress out of setting up your budget.
Once you create and stick to a budget, and have a solid grasp of your finances, you’ll be ready to level up towards bigger financial goals.
There’s no reason you should do this alone. Get expert advice from a qualified Metropolitan financial adviser who can help you plan for and achieve your financial goals. Or use one of our easy-to-use budget calculators to get stated.