Now it’s time to put together all the tips and tricks that you’ve heard from our experts and start your own budget!
Remember that this is YOUR budget and as you’ve heard in all the chats, it’s really got to work for you and be done in a way that makes sense to you. So even though I have provided the workbook for you, you really don’t have to use it! Have a look at the exercises and the templates provided but feel free to it in a spreadsheet or your journal.
Also, some people prefer a more rigid plan while others prefer a more fluid plan. Both ways are fine provided that you have some sense of responsibility and control. It is ok to spend a little more when going out for dinner than what you planned but you need to understand and have the discipline to then reduce your spending allowance in another area as you only have a limited amount of money.
Imagine only being able to access your money as cash. That gives you a far better understanding of the fact that it is a limited amount that you can count. As you spend each rand, you literally have less money. You need to adopt this mindset even though you may have a debit or credit card, you have electronic transfers off your account and you may even have a nifty app on your phone that allows you to pay by scanning a barcode. These things are handy but they make it seem like your money isn’t real.
Before we start, this course is aimed at a monthly budget as South Africans generally understand working with money from a month-to-month basis. You can obviously apply the same principles to a weekly budget if you earn a weekly income, but it becomes a little tricky to deal with a monthly expense (eg rental) when you earn a weekly income. However, you need to figure out a way that works for you and by using this budgeting resource you should gain enough knowledge to apply things to your own circumstances.
Start your own budget
Step 1 – Understand what you earn
Remember Nicolette in her video said that many people don’t really know how much they earn, they just have an approximate idea. Well, change that now and grab your salary slip!
Exercise 1 – Analyse your income
Write down exactly how much you earn. For the purpose of a budget we only really need to know the net amount (the amount that is paid into your bank account) but it is interesting to look at all the deductions on your payslip. Things like retirement fund contributions, medical aid, insurances & tax. If there are things that you’re unsure about, go chat to your HR department to find out why you’re paying for things.
If you don’t earn a fixed monthly salary then have a look at the income you’ve received over the past 3 – 6 months and work out an average. Also see if there are any patterns. If you’ve been freelancing for more than a year you may have noticed a certain period in the year that is busier or quieter. The December period may be a busy time in your industry, or it may be the slowest time. It’s interesting to understand the trends as it helps you plan a bit.
Step 2 – Know your expenses
This is slightly harder and in fact it’s an ongoing exercise. We’ll do two exercises now but you will need to monitor your expenses going forward and if you make a habit of tracking all your expenses you’ll be amazed at the power it gives you in terms of managing your money!
Exercise 2 – Estimate your monthly expenses
This is purely an estimation exercise so don’t feel pressured into lying to yourself or avoiding the truth about expenses. Really try to think of everything that you spend money on in a month and put a value to it.
It is a bit tricky when it comes to things that are not fixed monthly expenses. Toiletries, car repairs, make-up, clothing, etc are things that vary from month to month. That’s fine for this exercise, just try to think how much you actually spent last month.
Think of all your expenses such as:
- Rental / home loan
- Household maintenance
- Water, Electricity, Rates & Taxes
- Home security
- Car finance
- Petrol / Transport costs
- Credit card / store card payments (debt eats away your money but we’ll get to that in another module!)
- TV / Subscription channels
- Internet / Internet services / Internet subscription sites
- Phone / Cellphone
- Groceries / Eating Out / Conveniece Food / Take-aways
- School fees / college fees
- Weekend entertainment
- Etc……. I am sure I have left many things off the list!
Once you’ve done this you’ll have a draft version of your budget. It probably isn’t the budget you want but it’s a great starting point!
Exercise 3 – Find your true expenses
This exercise is unfortunately a little harder and will take some time. But, it is so worth it!
Print out a copy of your bank statement along with a copy of your credit card statement. And if you have more than one credit card you’ll need all the statements. At this point you should already be asking yourself why you have more than one credit card! Look at one calendar month (eg 1st of month until the end of the month).
Now using 4 different color highlighters, highlight each item according to these categories:
- Obligations – things that you have to pay (debt, contracts, legal obligations)
- Living Expenses – food, clothing, water & lights, schooling, transport and things that you need in order to live
- Nice-to-have’s – things that you like but don’t necessarily need
- Obvious overspend – it’s obvious that this expenses was an overspend and should be stopped!
Note: The “Obvious Overspend” can be applied along with a different category. So if the item is a Truworths Shopping for clothing, perhaps it falls under Living Expenses but it is also an obvious overspend. That’s cool.
Also, there is a bit of a grey area between Living Expenses and Nice-to-have as clothing is definitely a Living Expense but a designer pair of jeans at R2,000 is a Nice-to-have. So again, if you need to highlight with more than one color that is fine.
After getting a visual of where your expenses are going, try to add up expenses and compare them to your estimates.
In Exercise 2 you may have estimated R300 on take-away food so now you should try find all transactions that relate to take-away food and tally them up. How good was your estimate?
You won’t be able to find all the exact details as your bank statement doesn’t show details of what you actually bought. But, it should be sufficient to help you see the main categories and types of expenses and to also see if your true expenses are in line with what you think they are.
This is a great start and I trust that you’re finding it insightful! And to be honest, it’s not that hard! It actually gets easier as you do it more.
You can now move on to Lesson 5 to see what to do with this information.