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By Danie Esterhuyse, Senior Financial Adviser at PPS.
The New Year brings in new hope and resolutions to achieve. For many professionals, one of the most common resolution is better management of their finances.
Financial resolutions often focus on starting – or sticking to – a budget. However, the key to budgeting is being realistic about your money and finding a system that works for you or your family.
According to Stats SA, on average a South African household will generally consist of three to four people with an income of R138,268 per year and an annual expenditure of R103,293 – meaning that there are ways to manage your expenses and not live outside your means.
It goes without saying that 2018 was tough economically, with rising food and petrol prices, the increase in VAT and the repo rate increasing by 25 basis points from 6.5% to 6.75%. People had to dig deeper into their pockets to survive. However, it was also a good opportunity to assess where you spend your money and prioritise items within your budget.
The majority of South Africans spend their money on housing and utilities first – making this their biggest budget expense at 32,55%. This is followed by transport at 16,29%, miscellaneous goods and services at 14,68%, and food, beverages and tobacco at 13,75% – this is according to Stats SA.
Unfortunately, we all have blind spots that we are unable to see, the hidden costs we’ve never thought about. For example, buying that delicious R30 cup of coffee every morning is costing you R600 a month. That’s a good R7 200 per annum that could go towards your car instalment or your bond.
It’s important that you have an accurate reflection of your expenses against your income. Start by listing all the areas of your financial situation you would like to improve or in order of importance and tackle them one at a time.
A popular rule for allocating your income would be the 50/30/20 rule. This puts 50% of your income towards necessities for your fixed expenses such as bond and car instalment, 20% towards financial goals and savings and 30% to variable expenses like dining and entertainment. Increasing the 20% towards your financial goals will increase your financial stability and security.
Be sure to consider these basic budgeting tips:
Write down your expenses on a spreadsheet and have designated spending categories. Note everything down, not just the big-ticket items like your bond and car.
Instead of calculating what’s left over and allocating that to savings, include a savings amount as an expense.
Review your budget regularly and recalculate – it’s not cast in stone.
Don’t forget to cover irregular expenses like birthday presents, annual subscriptions, car services, etc.
A good budget allows you to take control of your finances, it gives you the power to make the necessary changes in order to achieve your dreams.
Always remember, while having an income to sustain you and your family is a vital part of life, money is neither the end-goal nor should it be considered all-important, but it is what money enables us to do and dream about that takes centre stage.