April is financial literacy month, and is an ideal time to adopt healthy financial habits, learn new money skills and reach savings goals. With the cost of living in South Africa climbing, sticking to a budget can be challenging.
“There is a misconception that money problems stem from not having enough, but the reality is that solving any financial problem begins with learning financial literacy skills and committing to maintaining a budget and financial plan,” says James Williams, Head of Marketing at Wonga.
“Creating a budget each month is an efficient way of tracking where your money goes and to start managing your finances. Whilst this may be challenging to do at first, a budget makes it easier for you to reach your financial goals and set up a savings or emergency fund for any curveballs that life may throw at you.”
“The aim of creating a budget is to take control of your finances to achieve financial independence,” says Williams. “Smart budgeting and being disciplined enough to stick to it is key, as it ensures that you are always on top of what you are spending your money on.”
Williams explains how this time has taught us about the importance of budgeting and having enough savings to get through challenging periods. “Taking care of your financial wellbeing is about exercising good habits and avoiding poor decisions when it comes to managing your finances,” he says.
Williams shares his tips on how to create and stick to a budget.
Step 1: Calculate your expenses
Any budgeting exercise needs to start with a thorough assessment of expenses. Calculate the money going in and out and allocate accordingly. Be as accurate and detailed as possible in your monthly assessment for your expenses. This gives you a clear picture of where your money is going every month and areas which you are wasting it on.
Step 2: Determine your income
This should be an easy one, especially if you earn a fixed monthly income. If you freelance, run your own enterprise, or earn commission, you can approximate an average monthly salary by averaging the total income you’ve made over the past year.
Step 3: Create goals for saving and for paying off debt
With step 1 and 2 complete, you will be able to see whether you’re on the right side of that equation (money in > money out). If not, this is where you can scrutinise your expense sheet for areas in which you can tighten your belt, for example:
Instead of expensive take-out coffees and café-bought lunches, make your own lunch and coffee (in a thermos flask) at home. This can easily save you R100 a day, which is R500 a working week, and in turn is R2 000 a month!
When you go for your weekly grocery shop, be a little thriftier with your spending. Buy in bulk, opt for less expensive brands, and avoid unnecessary spending on items you can do without. This can save you hundreds of Rands every week.
These are just a few ways you can cut back on unnecessary spending and with this extra money in hand you can create a list of goals for saving and paying off debt faster. Allocate portions of your income to (1) a savings account, (2) an emergency fund, (3) retirement contributions, and (4) debt repayment.
Step 4: Record your spending habits and track your progress
Keep a detailed record of your spending habits by writing down every single purchase and deduction that comes off your account, even something as small as a take-away coffee. At the end of each month, tally up your expenses and voluntary spends to see how much you’ve managed to improve your habits. Each month, try to do better!
Step 5: Be realistic!
The secret to sticking to a budget is to be realistic. You will only set yourself up for failure if you create a list of impossible goals that don’t allow for any kind of enjoyment. If you allocate a portion of your income for pleasure, as well as for possible unforeseen expenses, you’ll give yourself the breathing room you need to enjoy your life and survive financial bumps, while still accomplishing your goals.
“If we budget carefully, this will ensure that we don’t live beyond our means,” continues Williams. “Budgeting is a necessity and is an easy way to protect your financial wellbeing.”