A monthly budget can make you the boss of your money

It’s a week before pay day and you’re wondering where to find a time machine to catapult you into next month so that your bank balance can be in the black again.   Failing that – are you living off credit or making use of an overdraft facility to see you through those last few days of the month?  Sensibly managing your own money is one of those unavoidable tasks that WILL earn you peace of mind.

Being in control of your finances starts with drawing up a monthly budget. Budgets aren’t only for bean counters or finance ministers – everyone should have one.  A budget is your picture of what goes into and out of the family kitty every month.  In other words, a budget maps out your monthly income and monthly expenses.

Drawing up a monthly budget can feel a bit like climbing onto a bathroom scale to check if you’re overweight or not. You may be terrified of what the scale is going to show. The first time may be something of a shock, but once you’re in the picture you can start doing something about getting into better (financial) shape.

A monthly budget will enable you to:

• Understand how you spend your income
• Identify any excesses – areas of overspending
• Save more by trimming wasteful expenditure
• Make provision for unforeseen expenses
• Avoid costly debt
• Build long-term wealth

Do what works for you

If an Excel spreadsheet makes you break out into a cold sweat, don’t despair. Just jot down your income and all your expenses on a piece of paper or create a Word document on your PC and use a calculator to add up all your monthly costs. Do what works for you. You then need to compare your net income with your expenses.

Step 1: Your income – understanding your salary slip

Your salary slip gives you valuable information about your monthly income.  It shows your total earnings (i.e. gross income), your deductions (e.g. income tax, retirement fund, medical scheme, Unemployment Insurance Fund) and your net income (i.e. what you take home).  Essentially, your net income is your earnings after deductions and this is the amount that your employer pays into your bank account. Sometimes it is possible to increase your net pay by structuring your salary package differently. Speak to your HR department or your financial adviser to find out if this is an option for you.  When determining your household’s net monthly income, remember to add other income sources such as your partner’s net salary or rental income. 

Step 2: Your expenses – understanding where your money goes

Your bank statement can help you identify your monthly expenses, especially if you make use of a debit or credit card.  It’s also useful to keep copies of regular monthly bills such as those for municipal rates, electricity and school fees.  You could also consider keeping a spending diary for a month.

Record your expenses as they occur on a PDA or in a small note book. It is important to get a very good idea of how you are spending your money. You should also get a clear picture of those impulse buys, which are easily forgotten until you next hit the shops and realise that you’ve maxed out your debit or credit card.

You may make regular donations to your favourite charity or even lend financial support to your extended family – for these you should also budget.  Here is a list of typical expenditure items:

• Housing (e.g. bond repayment, rent, levies, rates and electricity)
• Transport (e.g. car repayment, fuel, train and taxi fares)
• Groceries (food and drinks) 
• Household contents, equipment and maintenance
• Alcohol and cigarettes
• Recreation (e.g. gym, weekends away)
• Entertainment (e.g. movies, theatre)
• Clothes and shoes
• Communication (e.g. telephone, cell phone and Internet)
• Restaurants and hotels
• Education (e.g. school fees)
• Health (e.g. costs not covered by your medical scheme)
• Charities and extended family
• Credit or store card payments 
• Insurance
• Investments (e.g. RAs and unit trusts)

Step 3:  Balancing your income and expenditure

Once you have a clear understanding of how your income is spent, you can draw up a budget against which to monitor your expenses and focus on particular areas for improvement.  You will now have a good snapshot of your finances. There is a well-known saying that “if you can measure it, you can manage it.” A budget will help you identify overspending and non-essential expenditure.  If there’s more money going out than coming in, you will have to get rid of some ‘flab’.

You may find that you’re spending too much on non-essentials such as entertainment, while you’re not setting aside enough for unforeseen expenses such as a burst geyser or medical scheme co-payments. Generally, you shouldn’t spend more than a third of net monthly income on either housing or transport as this could result in you having insufficient funds for other essential items.  Speak to an accredited financial adviser if you require guidance. 

There is no set formula for drawing up a budget – your personal circumstances have to be taken into account. Review your budget regularly and don’t be afraid of identifying and dealing with ‘flab’.  Once you’re in control of your expenditure you can take action to improve your financial well-being.  A budget allows you to be the boss of your own money.