Budgeting is something all of us should be doing, but few are – or, at least, few are doing properly. The problem is that while many experts tell you that you should be budgeting, few will tell you how. If you are looking to start, here are some of our key tips:
If you’re wanting to start budgeting, it’s probably because you are trying to save, which is great. But what is it exactly you are saving for? It’s hard to keep the motivation up when you are just saving for savings sake. The best way to save is to set specific and realistic goals. If you have a focus for your savings, it’s much easier to stay on track.
Once you have defined your goals, formulate a plan to achieve them. Take the goals and look at the expenses you need to cover for the next 6-12 months and document your purchases and savings in a spreadsheet. Prioritize expenses and see if there are areas where you can cut costs. Then calculate how much you can put aside each month. Once you have crunched the numbers, make sure you deduct your savings from your payday balance first, transferring your savings to a savings account soon after you are paid. This will help you get used to a working with a smaller budget.
To ensure that your savings are transferred into your savings account at the start of every month, you could set up a debit order. This way you wouldn’t have to remember to make the monthly transfers to your savings account and your money starts earning interest from the get-go. You’d also get used to seeing less money in your current account and get used to working with a limited budget.
Putting pen to paper every time you make a purchase, even for the most diligent of us, is almost impossible. There will always be that one time you can’t find your pen, or if you are doing it on your phone, that your battery runs out, and that impromptu R200 grocery shop goes unaccounted for. There’s a simple solution: stick to online purchases and those that you can swipe for. This will make it easy to track your expenses with a budgeting app like 22seven. Just remember that you’re spending real money every time you swipe your card. It’s all too easy to forget that you’re using real money when your transactions are made with plastic and not cash.
If you set up a emergency fund, your savings and budgeting plan is less likely to be derailed by unexpected expenses. Also, you (hopefully) won’t have to rely on a loan for any surprise expenses – burst geysers, car repairs, doctors bills. Your emergency fund should be kept in an account where you can access your money both quickly and easily. To learn how to create an emergency fund, read our blog post on emergency funds.
Get all your debit orders out of the way a day or two after your salary is normally paid. This helps separate your primary expenses from your disposable income and will prevent you from thinking you have more money than is actually available. It also helps you maintain a good credit score and avoid late payment charges. If a debit order went off when there weren’t enough funds in your account, you’d pay a penalty to the bank and risk damaging your credit score by sending a signal to credit agencies that you weren’t on top of your finances.
If you are serious about saving, you should open a bank account that promotes saving. An account like the Old Mutual Money Account not only helps you cut costs with it’s low banking fees (the monthly admin fee is R4.50, swiping and online purchases are free, cash can be drawn at a till for R2.50 and debit orders cost R3.40), but also grows your money in a one of a kind unit trust savings account (with a average return rate of 7.1% per annum). To learn learn more about the Money Account’s linked accounts, visit our Money Account page.
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