Know what you earn and owe

The secret of wealthy people is that they take control of their earnings and expenses. So if you want to create wealth, learn what you earn and know what you owe.

With proper record keeping you can collect the details of your income and spending. It will surprise you to see how much you actually spend on items such as lunches and cell phones.

Take Control

Learning to budget is a very important life skill. All you need is a commitment to having control over your finances.

A budget will help you to:

• Know how you are actually spending your money.
• Decide on your priorities and what needs to be changed.
• Plan how to use your money in the future.
• Take control of your finances.

Hints & Tips

Check your pay slip every month. This is the key to understanding what you earn and what deductions your employer makes. It is your right to question and understand how your salary is calculated.

Types of Income

While you may earn a set amount each month there are two types of income referred to for taxation purposes.

Gross Income

This amount should be what was agreed to in your letter of appointment and subsequent increase letters. It can be broken down into a basic salary and allowances such as a travel allowance, but the total earnings reflected on your pay slip would be your gross income.

Net Income

This is what is transferred into your bank account each month. It is calculated after taking into account deductions. Deductions include:

• Tax
• Pension or Provident Fund Contributions
• Medical Aid Contributions
• Other Deductions. These should only be made with your permission, for example, union fees or parking bay fees.

Learn what you Earn

Your household might have several sources of income such as interest or rental income. Remember to include these in calculating your total household income.

Know what you owe

Now that you know how much you earn, you need to work out what you spend every month. Take the time to record how you have spent your money for one month – keep the slip for every coke and burger that you buy.

• Keep all your receipts, and keep a notebook in your pocket.
• Add up your daily expenses every evening.
• Also check your bank statements as they will reflect any payments made electronically.

Fixed Expenses

These expenses are the easiest to budget for as they stay more or less the same each month or annually. Often they are paid automatically by stop or debit order. Check your bank or ATM statements for these. These include:

• Car and loan repayments
• Rent
• Insurance policies
• School fees
• Automatic savings

Variable Expenses

Expenses that you incur regularly but change in amount are called variable expenses. These include:

• Telephone
• Electricity
• Clothing accounts
• Casual spending

Irregular Expenses

These are difficult to budget for because they don’t happen every month. Some of them are expected like school uniforms. But there are those unexpected expenses that make us glad for our emergency savings plan.

To plan for these go over your major unexpected expenses for the last year like car repairs or burst geysers, and divide the total by 12 for a monthly average to save.

Casual Spending

This is the area that adds up with out us noticing it. If you buy lunch every day you will be amazed at how it adds up.
Spending N$10 every working day = N$10 x 20 = N$200 per month on lunch. Consider making your own lunch it is much cheaper – and probably healthier.

Record Keeping

This is an important skill to acquire and good administrative habits are shared by most wealthy people practice. File and organise documents. This will help if you need to return goods under guarantee, query any charges, or show proof of payment.

Draw up your budget

Get the family involved in drawing up and sticking to the household budget. Explain the bigger picture, so they can see the future rewards for their current sacrifices.

• Make debt repayment your priority. Pay it off as quickly as possible
• Keep your records organised. Being in control of your paper work is the first step to being in control of your finances
• Be honest with yourself. Do you really need to spend as much on all your items?
• Review your budget regularly
• Make sure you are budgeting enough for savings

Monthly Budget

You now need to decide how you are going to spend your money in future. It is time to draw up a workable budget for the next few months. Remember you must not spend more than you earn.

Review your budget

Review where you are after a month, 3 months, 6 months and a year. If your circumstances change, revise your budget. Check if you are sticking to your budget.

Does your budget support your long-term vision to create wealth? If not, what can you change?