15 simple steps to manage your money

Schalk Louw is a portfolio manager at PSG Wealth. (Picture: Supplied)
Schalk Louw is a portfolio manager at PSG Wealth. (Picture: Supplied)

As we try to navigate the waters of our own finances, we frequently have to resist siren calls. 

In Greek mythology,  sirens – beasts with the head of a woman and the body of a bird – lured sailors to their doom with their enchanting singing. 

Unable to resist the beautiful voices of these creatures, sailors would steer towards the sound, smashing their ships on the rocks surrounding the island on which the sirens lived. 

Even though we all know that debt is bad and that we should not spend money we don’t have, easy loan availability is a temptation few can resist, much like the sirens’ song. 

Many make the mistake of believing that a personal budget can be memorised, and that putting it on paper is a mere formality. 

Unfortunately, you have already lost half the battle if this is your strategy. 

And I don’t think people have quite grasped the enormity of the increase in VAT – by one percentage point as from 1 April 2018 – which was announced in February’s Budget Speech.  

Most of us have only considered the effect of this increase on groceries: we have failed  to realise that it will also affect other monthly expenses such as insurance premiums, cellphone and telephone accounts, utility bills and even bank charges, to name a few. 

If we really have to, we can still cut back on a few luxuries when grocery shopping to save costs, but the effect of the VAT increase on fixed, compulsory monthly expenses will not be as easy to control. 

So for this reason, it is absolutely crucial for South Africans to revisit their personal budgets (or get cracking if you don’t have one) to make sure that they don’t end up shipwrecked because of the increase in VAT. 

A personal budget is easy to set up and it shouldn’t take you more than 15 minutes a week to update. 

Below, I share my 15-point budget plan:

- Start with a clean Excel sheet or a piece of paper on which you can draw columns.   

- Categorise your expenses by working through a bank transactional statement or your bills for the past month.   

- Don’t forget to include your hobbies, habits and/or any other extras you treat yourself to every now and then.   

- All funds flowing into your account should be identified clearly in order to determine your average monthly income.   

- Remember that saving comes first. Saving should not be an afterthought, so make sure you set aside a fixed amount in a separate savings facility every month.   

- Set yourself realistic goals when you try to cut back on the expenses listed in each of your columns in an attempt to save, or save more if you’re already on the right track.  

- When you’re happy that you have included all the possible expense categories that apply to you, you can start to add up these expenses in each column. 

This is exactly where you will need to take the VAT increase into account when planning ahead.   

- Be sure to include all cash withdrawals in your budget on a weekly basis as well.   

- Next, it’s time to calculate the subtotals of your income and expenses.   

- Subtract your expenses from your income in order to determine your net income.  

- If you have a negative net income (i.e. your expenses exceed your income), you will have to seriously re-evaluate your expenses and spending habits.   

- If you are lucky enough to have some funds to spare, transfer as much as possible of this amount to your savings account, unit trust or other savings facility. 

Leaving spare money in your bank account will tempt you to spend it on things you don’t need at some point.   

- Take stock of your expenses intensively for at least a month or two in order to identify and quantify your monthly expenses. 

You can then go back and see whether there are any additional places to make cuts.    

- Again, set yourself realistic goals to reduce the above-mentioned expenses by starting with your biggest expenses first.   

- Be sure to keep your budget up to date, and to evaluate it on a monthly basis.

The story of the siren song continues:

Orpheus, a talented musician in ancient times, was called in by the Argonauts to assist them on an expedition that would lead them past the sirens’ island. 

As they approached the island, Orpheus heard the creatures’ voices, immediately took out his lyre and sang and played so beautifully that the sailors weren’t tempted by the sirens and managed to pass the island safely.

In this context, the lyre is nothing more than a well-executed budget. 

It is extremely important to take a realistic approach to your budget, to help you to stay within its confines as comfortably as possible. 

With the prospect that things will not be getting any easier for South Africans from an economic perspective, it will be the only way for you to sail safely past the tempting “song” of unnecessary expenses and debt. 

Schalk Louw is a portfolio manager at PSG Wealth.

This article originally appeared in the 12 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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