Take control of your finances

What a budget really means is spending less than you earn and saving the balance. Most of us think we know the state of our finances, but right now can you say ­exactly how much you spend each month? It would take just 20 minutes to draw up a budget – this is how:

The 20-minute budget plan

  • Grab your latest bank statement.

  • Place a blank “to-do” list next to you.

  • Take your bank statement and see what your net monthly income is – what actually lands in your bank ­account.

  • Deduct your fixed monthly ­expenses, which will most probably be debit-order based. This will include items such as the bond or rent, levies, car repayments, ­municipal bills, phone bills, insurances, gym memberships and medical-aid premiums. If this ­becomes a very long list, note the items that are not ­essential needs.

  • To-do list action 1: Stop the non-essential items.

  • To-do list action 2: Review insurance. For short-term insurance this can be done by phone. For long-term insurance, see if you can increase your group life cover. If you get it through your employer, it should be a bit cheaper. You will need to see a qualified financial ­adviser for guidance on this.

  • Look at your day-to-day expenses, largely paid on the debit or ­credit card. This is where the wheels come off for most of us. Items, such as petrol, clothing, groceries, cash withdrawals and recreation stuff, are where you can make the most radical difference to your wealth-building strategy.

  • Work out which of them are need-driven and which are want-driven and see what the need-driven items cost you.

  • To-do list action 3: Find cheaper ways to meet the “needs”. Buying in bulk, going to different shops, paying in advance or joining a lift club are examples of what can be done to accomplish this.

  • Consider taking what you manage to save on your “needs” and spoil yourself with something from the “wants” list. If you can ­afford to, set aside a small amount for one more “want” a month.

  • Whatever is left, must be saved.

  • Plan for big events. Part of the money you are saving each month can go towards major expenses that you will be facing this year. On your to-do list write down these ­expenses which can include school fees, holidays, car repairs.

  • Work out from your budget how you will fund these expenses. ­Rather have the money saved upfront than go into debt.

  • Start a safety net. It may take a few years to get there, but generally you should have an amount equal to three salaries saved in a money market account. This money is an emergency fund in case you suddenly find yourself out of work or have a major unexpected expense.

  • Rework your debt. If you need to find more money to meet ­your ­savings needs, odds are that your debt is eating up most of your ­savings ­potential.

Talk to your banker about what you can do staunch this trend. If this fails, fight the urge to ­upgrade your car or house.
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