How to budget when you know you should
Author: Staff Writer
A carefully managed budget can ensure you don’t end up in unexpected financial difficulty as a result of unexpected situations. And it’s not hard to do. The most difficult part is being disciplined about sticking to any budget you draw up.
The most important part of any budget is to make sure (if you can) that you don’t spend more than you earn. If you stick to this principle consistently, you can be assured that you are unlikely to end up with debts you might struggle to pay.
Begin by allocating a notebook, journal, or computer file to where you store and can easily update your monthly budget. As budgets sometimes need revising, keep this safe so you can easily make the necessary changes.
Income and expenses
Begin drawing up your budget by listing and prioritising your expenses. At the top of your list, place accommodation, your car, your credit cards (which, ideally, you should be paying off and not spending more on!) and then all credit instalments, such as those relating to furniture, monthly insurance premiums, including car and household insurance, and any life insurance policies to which you may contribute.
These are all fixed amounts that may vary only slightly due to increasing or decreasing interest rates or to annual revisions of insurance premiums. It may be useful to increase these each to accommodate unexpected changes in interest rates. You should not be spending more than 30 per cent of your gross income (income before any deductions) on accommodation, whether it is a bond or rent.
Your car should not be costing you in total more than six months’ gross salary. When making provision for retirement, you should be spending five per cent of your gross income on annuities.
It’s very important to budget for emergencies such as medical costs that are not covered by your medical aid or a car that must be repaired. If you have money available for one of these emergencies, you won’t have to cut on other items in your monthly budget or end up not being able to pay for something important.
A few tips to remember:
Don’t spend more than you earn.
Never put anything on a credit card you know you can’t pay off at the end of the month. Emergencies do arise, but with proper planning these can be taken care of without going into debt.
You should include in your budget money that needs to be set aside into your savings.
Save money by making use of special offers and buying generic and no-name brand alternatives.
Don’t see a budget as a form of slavery. See it as freedom. The more responsible you become with your spending, the more you will have to spend and the more relaxed and in control you will feel.