A recent survey we found says that over less than ¼ of households in South Africa budget. An interesting thing to consider is a poll asking the question should businesses have a financial strategy and budget.
Do you think only ¼ of South African’s would think businesses need to budget? I am sure almost every participant would agree to the importance of businesses planning for their financial future. Why do we not then treat our households in the same regard, especially when our home is arguably more important?
Investopedia defines budgeting as an estimation of the revenue and expenses over a specified future period of time and is compiled and re-evaluated on a periodic basis. A surplus budget means profits are anticipated, while a balanced budget means that revenues are expected to equal expenses. A deficit budget means expenses will exceed revenues.
What does this all mean?
Simply put budgeting is a discipline that allows you to look at your financial position at a glance and gives insight into where you’re spending your money. Before further discussing this concept it is important to highlight that budgeting is a discipline. It takes work to improve and although you will definitely falter while trying to budget you need to see the bigger picture of working towards a greater goal. Be ready for a slip up and chalk it up to a lesson.
Back to the basics there are many ways to work towards a financial strategy but the main premise will be to assess each month taking your income deducting all your expenses and being left with outcome. A surplus means for the month you have additional money, if it balances you have no money at the end of the month but everything is paid for, a deficit means over extending and using debt facilities to fund you lifestyle.
The first step is to set up a plan that leaves you with a positive balance at the end of the month. Categorise expenses you have fixed expenses i.e. debit orders, loan repayments and accounts that you have to pay each month. Living expenses these are expenses that may fluctuate to some degree but your goal is to predict this expense as accurately as possible these are things like food, petrol and electricity. Variable expenses these are likely incurred each month but will vary to some degree, things such as birthdays, weekends away, furniture and appliances etc. Some of these larger expenses will require planning months in advanced like birthdays and weekends and are usually predictable therefore planning is possible.
It is difficult to predict when your fridge or TV will stop working and so how does one plan for these events. An emergency fund can prevent you from ending up with debt. For the ¾ of households without a financial plan one can assume a broken appliance the breaking down of a car can only result in the accumulation of debt. An emergency fund can prevent this situation.
The biggest challenge about budgeting is that it usually requires a lifestyle adjustment which can be tough but the lesson of living within our means is an important one. Don’t be the average South African and put your head in the sand, financial stability and independence comes from a direct and committed approach.
Speak to someone
To really reap the benefits I would recommend speaking to a financial advisor who will take the time to go through your financial affairs. Having a third party to assess your thoughts around budgeting is invaluable. There are salesmen and then there are advisors make sure to spot the difference. Seeing an advisor doesn’t mean you need more insurance. If you are not sure of who to talk to we can refer you to someone in our network.
All information provided in this article is provided for information purposes only and does not constitute a legal contract between the party delivering this document, the client and any other person or entity unless otherwise specified. Nothing contained herein is intended to be, or should be construed as advice, guidance or a recommendation.