We all understand the importance of saving money, but for most of us it’s tough to get any initial traction going and then settle into a real long-term cash accumulation groove, because there just “doesn’t seem to be enough money left over at the end of month’’.
So, we start and then we stop, and eventually we feel super-guilty about the fact that we can’t find a way to transfer a couple of hard-earned bucks into a separate bank account to cover a ‘’rainy day’’ we know is inevitably on the horizon.
The white flag is prematurely raised and the family emergency account, medical savings top-up plan, or the retrenchment go-to relief package never ever gets off the ground.
Then the storm clouds start to gather (because that’s just how life goes) and the financial hailstorm, we silently hoped would circle past us or perhaps simply dissipate, hits hard and quickly, leaving us with no choice but to reach out for a line of credit to cover any unexpected expenses.
July is National Savings’ month, and we don’t want to stand at the pulpit and preach because times are tough and many South African households are struggling at the moment.
What we do want to emphasise is something we all should be doing on a regular basis – examining our budget and becoming far more aware of how we spend our money.
Sure, it’s not easy placing ourselves under a microscope and scrutinising all the little impulsive purchases we make, but if our personal budget continues to leak Rands and cents we will never find a way to save.
So how do you fix a leak?
First off, you need to identify the source of the leak, right?
Setting a budget at the beginning of each month is vital. It often feels like a hack and more admin than it’s worth, but unless you take the time to set spending parameters upfront, it’s impossible to reconcile at the end of the month and determine if you overshot the mark.
Budgeting keeps you disciplined and focused, and it’s the number one reason most households end up spending far more money than they have available to them.
You also don’t need to fool yourself into believing that you need a sophisticated App or the latest personal accounting software to get started. If you can operate an Excel spreadsheet, that’s first prize, but a simple R15 exam pad from a stationery shop is actually all you need.
You can start right now if you have a pen and paper handy.
Take a pen and draw a line down the middle of the page.
In the left-hand column jot down all your expected monthly expenses and mark off next to each one if it’s a “fixed” or “variable” expense.
Fixed expenses are those that don’t budge – you pay the same amount month-on-month until an annual price increase occurs. Examples of this are your rent, insurance premiums, or your kids’ school fees.
Variable expenses are items in your budget that might fluctuate depending on how much you spend – examples of these are entertainment, airtime or transport/petrol costs every month. You will need to input an average here, or at least a maximum that you will allow yourself, as these are the only expenses that are in your immediate control.
Now that you have listed all your expected monthly expenses, make sure you keep track of what you spend during the month. Most of us carry a smartphone around that has a decent note-taking built-in App. Use that to track your expenses for the entire month.
At the end of the month go and pull down that page you inputted your expected expenses into, tally up all your actual expenses and make sure you ask yourself the following questions:
- How far out am I from what I budgeted for?
- Why did I overspend in certain areas?
- How can I improve/save in certain areas?
Then pop a savings line item in your budget and interrogate other areas in your budget until all the leaks are plugged.
Until next time.
The Wise About Life Team