While nobody enjoys setting up a monthly budget and most people avoid it as far as possible, the fact of the matter is – South Africans are in a LOT of trouble.  They have no idea how to budget or they are currently in so much debt that consider making use of a budget as a useless exercise…too little too late, or something to that effect.

Well... you are wrong.  Doing a budget is always a great idea, and it’s definitely a much better idea than just missioning along on your self-destructive path.

So the question is…how do you set up a basic, but functional budget?

Step 1 – Calculate your available income

In most cases this would be your monthly salary. Make sure you use the amount that your employer transfers into your account, so your net salary, not your gross salary.  This should only contain amounts you are fairly sure you will be receiving.  Anything extra you receive can either be saved or used for something specific such as paying off debt or buying something you desperately want.

Step 2 – Identify non-negotiable payments

These are the things that you can’t NOT pay. This will include:

• Rent, or if you own a home your bond repayment for the month
• Car repayments
• Medical aid (if it hasn’t been deducted from your salary by your employer)
• Pension fund contribution (if it hasn’t been deducted from your salary by your employer
• Insurance (car, household, etc)
• Credit card repayments
• Electricity and water.  Calculate an average by using your electricity and water for the past 6 months.
• Automatic expenses most people forget are bank charges, credit card fees and overdraft fees. Make sure you determine your average monthly costs for these and include them in your budget as you can rarely escape them…..sadly.

Step 3 – Identifying living expenses 

The important thing to remember is that living expenses do not include luxuries.  Living expenses are the things you absolutely can’t survive without:  

• Money for fuel.  (The best way to determine this is to evaluate what you average per month on fuel by monitoring your fuel expense for 2 months or so).
• Groceries.  This will include your food, cleaning materials and toiletries.  Try and exclude luxury food and toiletry items from this list, especially when you are on a tight budget.
• Cellphone, Internet and you home telephone line.

Please note that this list does not include items such as entertainment, cigarettes, restaurants and alcohol in any form as they are not considered living expenses, but luxuries.

Step 4 – Calculate spending money

Deduct your non-negotiable expenses and living expenses from your guaranteed income to determine how much you have in a month available to either save, pay debt off faster or indulge in a few luxuries.  It is here that you determine how many cigarettes you can buy, whether you can afford to go out to a restaurant once a week, whether you can afford that gym contract, how much you have available for shoe shopping, how much you have available to go out socialising and how much you can put away for a rainy day.

The most important thing about a budget is that once you’ve determined the amounts you budgeted are reasonable you have to stick to it.  It’s no use going to all the trouble setting it up and not keeping to it.  If you determined you could only go to a restaurant once a week, then stick to that.  And if you do go twice this week, try not to go next week to make up for it.

Tips and Tricks

Here are a few other tips to keep in mind while setting up your budget and figuring out where you can save a few bucks:

• A good way to start saving on a daily basis is to start packing lunches rather than buying lunch, or go out for lunch every day.  Cook a double supper and take the left overs for lunch the next day, or spend 10 minutes in the evening to make sandwiches or a salad for the next day.  It makes a big difference cost wise.
• Pay off expensive debt first.  Think about it logically, the interest you pay on a credit card is insanely high.  And no matter how you look at it, paying that debt off slowly is costing you more than taking your money and saving it.  You will never be able to earn the type of interest you are paying on a credit card.  So as far as possible, use extra money to get rid of credit card debt as soon as possible.
• Once you’ve repaid your credit cards….try not to use them.  Or if you, like me, use them daily because it’s convenient not to have to carry money around.  Make sure you repay them in full at the end of every month to avoid paying high amounts of interest.
• If credit cards are a problem for you, and you don’t have the discipline NOT to use them extensively when you have them.  Cut up the card, or store it in a safe place, do not carry it around with you and increase the temptation.  Especially if you’ve just managed to pay off your credit card debt.  It is important not to close the account, as having the credit card account is good for your credit rating.  But try and keep yourself out of harm’s way as far as possible.

• Buy in bulk.  This applies to many things.  For instance: non-perishables that you use often in your house usually work out cheaper if you buy them in bulk at a wholesale store.  Buy fresh rather than frozen foods at the fresh food markets and process and freeze them yourself. 
• Meat is a rather expensive grocery item.  Lower your meat intake by taking part in meat-free Mondays or by making exciting vegetarian dishes and stews, etc. which uses a lot less (or no) meat.
• Wash your own car rather than taking it to the car wash.  While this sounds pretty odd, once you’ve done the math you’ll realise that we spend a fortune each month on ensuring that our cars are clean.
• Don’t go to the shops without a list.  A lot of money is wasted on thoughtless buying.  Make a list of exactly what you need and stick to it. 
• Take a good long look at the cellphone contract you currently have.  Does it meet your needs at the lowest possible cost, or is there another contract out there that is better suited for your needs and will work out cheaper at the end of the day.
• Keep an eye out for big sales or specials.  This applies to living expenses and luxury items.  If you need clothes…keep your ear to the ground.  There is almost always an awesome sale somewhere.
• And most importantly - if you are indulging in a bit of luxury shopping, always ask yourself.  Can I justify spending this much money on the item I’m buying? Do I NEED it?  Do I ABSOLUTELY have to have it? Sometimes we see something and we decide we absolutely HAVE to have it.  But then we wear/use it once and then after a while we realise it wasn’t as awesome as we had thought.  If we had just taken the time to think about it without getting caught up in the fever of buying we would have realised this without spending the money.