Recent News

Budgeting

ARTICLE FOR EDULOAN
ISSUED BY KEZI COMMUNICATIONS
15 FEBRUARY 2011

What is a budget?
A budget is a spending plan that includes everything you will spend your money on in a projected month. A good budget should not exceed your monthly income, and should declare every expense individually. The key to spending within your means is to know your expenses and to spend less than you make. The goal of a good monthly budget is to help ensure that you pay your bills on time, have funds to cover unexpected emergencies, and reach your financial goals. 

Why is it necessary to budget?
If you do not draw up a monthly budget, it becomes very easy to lose control of your expenses and it becomes much harder to figure out where the money went at the end of the day. Worse than that, is if you cannot figure out where you will get the money from to cover the big expense you forgot about.

To compile a budget is not difficult, as most of the information you need is already at your disposal. However, to ensure that your budget is 100% correct and accurate, follow these basic rules:

1. Go back to last year. To get an accurate spending pattern, start collecting all your chequebook and credit card statements for the past year. This will give you a good indication of expenses that occur monthly or annually. Make sure you collect all your cash receipts for the last month (or for the next month if you can't do this). Now, include all expenses: haircuts, coffee with the girls, bread and milk and incidentals. Try to be as thorough as possible, as this will ensure better accuracy. Collect all payslips, deposit slips or any stubs for monies received.

2. Record everything. Once you have all your slips, record them as a picture of what you spent last year or last month (you can use the free Eduloan calculator for this) or use a pencil and paper so that you can erase and add as necessary. This may take time initially, but once you have a system going, the process will be much quicker. Don't forget to record all your cash payments.

3. No duplication. Accuracy is the key to ensuring that documents/stubs/receipts are not duplicated.  Ensure that you tick all items off as you record them.

4. Convert regular payments. To make it simpler for yourself, convert regular weekly payments to monthly payments by multiplying by four. Convert bi-monthly payments to monthly payments by multiplying by two. Convert annual payments to monthly payments by dividing by 12. This may refer to annual insurances, car licences, TV licences etc. 

5. Record your income. If you get a salary, be sure to use your take-home income rather than your gross income when budgeting. Taxes are usually deducted automatically, but if they're not, remember to include them as another expense. If you receive money from an unlisted source, enter the source along with the amount under "other income".

6. Estimate expenses. The best way to do this is to keep track of how much you spend for one month. You can divide spending into fixed and flexible expenses. Fixed expenses are expenses that generally do not change from month to month, such as rent and insurance payments. Flexible expenses are expenses that do change from month to month, such as food or entertainment. If some of your expenses (for one or more categories) change significantly each month, take a three-month average for your total.

7. Figure out the difference. Once you've totalled up your monthly income and your monthly expenses, subtract the expense total from the income total to get the difference. A positive figure indicates that you're spending less than you earn - congratulations. A negative figure indicates that your expenses are greater than your income. This is unfortunately quite common nowadays as not many people have a surplus that they can add to their savings each month. The amount by which your expenses exceed your income is the amount you will add to your credit card and other consumer credit balances each month. In essence, this means you will need to trim your expenses in order to begin living within your means.

8. Trim your expenses. Review your budget to make sure there were no errors.  Now try to identify those areas where you feel your spending is excessive and where you could perhaps trim the expense. If necessary, you can consult a debt counsellor to assist you with this. Also, try to keep in mind that insurances, school fees etc., increase every year. Make the necessary adjustments to ensure your budget is accurate and up-to-date.

9. Save for a rainy day. Ideally, we should all have a savings account with a balance that matches at least six months of your net income. Once you reach this target, you can begin investing your money, or buying things you want.

10. Give and you shall receive. Giving or donating is just as important as paying a bill.  Even if it is not part of your regular payments, make giving part of your budget. There is a great deal of evidence that what you give comes back to you, multiplied.Bottom of Form

Well done - you've created a budget. The next step is to keep track of your budget over time to make sure you're sticking to it. If you find you aren't able to follow your budget successfully, it might be an indication that your plan isn't flexible enough. It can take revisiting your budget a few times to find the balance that works.

Editorial Contact:
Margie Mackintosh
KEZI COMMUNICATIONS
011 334 2493
083 231 1882
margie@kezi.co.za
www.kezi.co.za

« back to Recent General News list

In this section: