Whether we earn a big cheque or a lot less than we want, two weeks into the month and most of our pockets are empty. Independent financial advisor and consultant, Thuto Maboa says the secret to breaking the cycle is to know how much you have to start with and work within your budget.
Live within your means
Most people are broke for the most obvious reason; they spend a lot more than they should. “Credit cards and store cards often give people the false impression that they have more money in their pockets. From clothes to food, people are okay with the fact that they never completely own anything they have because they still haven’t paid for it, and are slow to realise that living on debt is an expensive exercise because it means having to pay more than the item actually costs,” he says.
Although credit isn’t a bad thing, Thuto says it is important to know when to use it, instead of just using it to balance your budget. “When it comes to buying a car or a house, having a bond or taking finance from a bank is a good idea because it allows you to pay for big items without inconveniencing yourself too much, but when it comes to food and clothes the general philosophy should be ‘if you can’t afford it, you can’t have it’, he says.
Don’t overdo anything
Although saving, investing and having insurance are important, many people overdo it and end up not having enough money to afford their living expenses.
“Saving and investing are important but they are not everything. When choosing your investments, it is important to shop around and make sure you get the best for your money, and that you choose something that is affordable and which you can sustain,” he says.
The same goes for every other expense; when it comes to managing your finances moderation is key, and you should set reasonable targets to avoid failure.
“Your income doesn’t dictate what you can and cannot do, it just limits the extent to which you can do things. Your budget should make room for this fact,” Thuto says.
1. Set realistic financial goals
When you don’t have financial goals, it is like walking about aimlessly without a destination. Thuto says having financial goals from month to month not only gives you direction, but makes it easier for you to create and stick to a budget.
“Your financial goals do not always have to be something you want to buy; it could also be saving a certain amount of money by a certain time. To know what you are doing makes doing it easier than just going with the flow,” he says.
Having a plan means avoiding unpleasant surprises mid-month, and although a budget goes a long way in helping you plan your finances, financial goals will help you to set your budget in the first place. Having both is essential.
2. Don’t keep money on hand
Having money on hand makes it easy to pop into the shops when a sale is on, or to make unplanned purchases just because you are in a mall.
Thuto says planning your finances before payday and making sure all your expenses are accounted for immediately after you have money available, is of utmost importance.
“Pay your bills, put aside the money for monthly expenses and buy what you can immediately so you don’t have money idling in your bank account, making it easy to make unnecessary purchases. It is tempting to use money just because it’s there, so do yourself a favour and take away the temptation. Pre-pay where you can and set your debit orders for your pay date,” he says.
3. Make what you have work for you
Wishing you had more money doesn’t solve any of your financial problems. The only way to financial stability is to personalise your goals and your budget.
“Competing with other people and keeping up with your peers is a very expensive exercise, and doesn’t motivate you as much as it harms you. People have different financial needs and circumstances, and those should be the factors that determine your budget, instead of the financial state of other people,” says Thuto.
Although most people will not admit it, it is tempting to try to keep up with friends, colleagues and other peers, whether it is building a new extension to your house or joining in on drinks after work. Understand that your budget is unique. M