With the holiday season here everyone will be tempted to overspend on travelling, entertainment, luxury gifts and indulging in non-essential goods. But this is a period for spending time and celebrating with friends and family, and the best thing you can do is spend within your means and items for which you did not budget.
Financial wellness is more about effective budgeting than people think. Once you understand money is a tool for reaching your financial aspirations in life, then you will start thinking about money differently. You will start realising money is not to be wasted, and each purchasing decision must be made cautiously and accounted for. Financial wellness starts with the recognition of bad spending habits and replacing those with good ones or saving habits.
Instead of encouraging a friend or family member to pay for everyone’s meal at a restaurant when travelling, you can split the bill evenly among everyone. Speaking to family or friends about money is a sensitive topic, which we have included in our financial education programmes at Momentum Metropolitan.
The company’s independent monitoring and evaluation service provider has reported this topic addresses much-needed psychological aspects of spending and saving. Once a married couple places all their cards on the table, detailing their income and expenses for a household budget, the relationship becomes stronger and reaching the family’s financial goal becomes easier.
Managing your finances starts with tracking your spending and aiming to save three to six months’ worth of expenses. Here are some tips to help you get through the holidays and beyond by making budgeting a habit and sticking to it despite all the temptations and peer pressure:
• Make a list of what you earn versus what you spend.
• It’s easier to budget when you write it down or keep a spreadsheet of your expenses for the month before you start to budget. You could also use a budgeting app to manage your expenses.
• Split your income up using the 70-20-10 principle – 70% of your net income is allocated towards living expenses like accommodation, transportation, electricity, food, clothing, school fees and maintenance; 20% of your net income is allocated towards saving and investing in yourself; and 10% of your income can go towards charity or helping family members in need.
• Settle debt with the highest interest first, like a credit card, home loan or vehicle finance, while still paying your other smaller debts.
• Don’t buy luxury items on credit. Save towards them and rather pay cash. Calculate how many months it will take you to purchase the item at an affordable amount per month, then place it in your budget and mark it as a short-term or long-term goal.
• With each life event – be it a marriage, divorce, purchasing a vehicle or finding a hobby to relax and find yourself – there is a need to change the way you structure your budget.
• If you can’t afford to pay your full instalment, contact the financial services provider and propose arrangements to pay less until you can afford to pay more, rather than paying nothing as this causes your credit record to be negatively impacted.
• Go through your bank statements in detail as this will help you conduct a monthly assessment of how well the budget was followed. You will compare the budget versus actual spending.
• On pay day, determine what you need to spend your money on. Don’t overspend when you go to the supermarket, for example. Purchase only the items you need and pay all your bills on time.
• If you discover your spending behaviour worsens at times of the month or when you are emotionally drained, find healthier ways to boost your morale.
Budgeting may look laborious at first, but it will secure you the financial wellness needed to acquire wealth and give you peace of mind in the long run. It is advisable to create an effective budget to manage your finances and track where you overspend money and stay out of debt.
Claire Klassen is a consumer financial education specialist at Momentum Metropolitan.