It is Easter Monday and it appears as if everyone else’s eggs are safely and neatly placed in their baskets, while you are having cold sweats of getting out of debt. It is never too late to take charge of your life and finance again – especially while it feels like to world is running out of resources. Be assured, that is not the case. You need to become a good steward of your resources to be able to live and breathe again.
Right after payday most people flock to supermarkets for their big monthly shopping. Lugging around a heavy trolley, they tick off items on a shopping list, compare products, buy bulk to save, and stock up on specials. They tell the kids that they don't need a new toy or more sweets.
These shoppers might be onto something. If they do it right, they’re sticking to a budget that suits their lifestyle, meets their needs, and keeps their finances healthy. There's more to it, but you can create your own personal budget and have a much easier time managing your money.
What are the advantages of budgeting?
Budgeting is important, and there are several advantages to making it a routine process:
- You know where your money is going
- You have control over your spending and saving
- You’re able to cut out unnecessary expenses and put that money towards saving for something you’d really like
How do I start the budgeting process?
You start by making a note of every dollar you spend. Next, divide the results into two groups:
Fixed expenses that don't change much and are essential, like:
- Utility bills
- Rent
- Bond payments
- Insurance
- Bank fees
Variable expenses that can change a lot, such as:
- Groceries
- Toiletries
- Data
- Transport
- Petrol
- Entertainment
Subtract these expenses from your net income, which is the money you take home after deductions like tax. There should be a decent amount left for another important element: financial goals. Setting goals will help you decide on what your priorities are. Short-term goals are those that you can reach in a year, such as buying a fridge, or clearing credit card debt. Think of anything beyond that, like saving for a home deposit, as a long-term goal. When you have a goal you’re saving towards, then you can add the expenses that come with your savings plan.
Find a formula that works for you
Experts in budgeting methods often mention the 50/20/30 formula. That means allocating:
- 50% of your budget for fixed expenses
- 30% for flexible costs
- 20% towards saving
You don't have to be right on those markers, but, if you're far off, or have almost nothing left after expenses, it's time to cut back. That doesn't have to mean cutting out. New budgeters, specialists say, often become too frugal. If you trim too much off of the entertainment budget, you'll struggle to stick with the plan. Flexible costs are where you can make a difference. Even small changes can lead to savings. This could be avoiding impulse buys, or using only your bank's ATMs to save on fees.
Extra Budgeting Tips
Reckless with credit cards? Using this known hack might help: try drawing a specific amount of money every month and paying for things in cash. You should save even while paying off debt. The common advice is to have three to six months' worth of living expenses put away as an emergency fund. If all this seems challenging, chat to one of our friendly financial advisers. They're here to help you reach your financial goals in the best way possible. Finally, review your budget regularly and don't forget the shopping lists!
Old Mutual offers On The Money Financial Education workshops for institutions. Make an appointment by calling us on +264 (0)61 299 3945 or emailing us at NamibiaTrainingHelpdesk@oldmutual.com