Simple Budgeting Tips to Help You Manage Your Money

The best way to ensure you are able to look after yourself and your family well into the future is by learning how to manage your money correctly. An easy way to do this is by following the below simple budgeting tips which will help you navigate unnecessary money traps and make your money work for you.

Like most things having a sound financial plan is the first step to getting your financial life on track. However, learning how to manage your money can take time especially if you don’t know where to start.

Luckily, Cyber Finance has put together this guide of simple budgeting tips to help you to learn how to master the art of effective money management. 

What Is A Budget and Why You Should Have One?

Before you can create a budget you first need to understand what it is and how this simple tool can help you take control over your finances. A budget is a simple plan that tells you how much money you bring in each month (in the form of a salary or wage) and how much money goes out in the form of cost or expenses.

A budget takes into consideration all your monthly costs and deducts it from your total income to give you a snapshot into whether your money is being used optimally or whether you need to adjust your spending.

Spending more than you earn is not good as it puts you at risk of acquiring unnecessary short-term debt which usually has a high interest rate cost and creates a cycle that is difficult to break.

Spending less than you earn is desirable as it leaves you with ‘extra’ money that can be allocated to reaching your financial goals.

Now that you understand what a budget is you can begin to create your one.

Calculate Your Income and Expenses

The first step in creating your personal or household budget is to evaluate your monthly income and expenses.

Start by listing all your income for each month. This includes all recurring money that comes in, less tax. Different types of income include wages, child support, spousal allowance, and rental income, to name a few. If your monthly income varies, try to estimate the average take-home amount after tax and add up all the money that is generated each month. This is your total monthly income.

Next, you need to calculate your total monthly expenses. Total expenses are made up of three types of costs namely, fixed costs, variable costs and discretionary cost.

  • Fixed costs: Can be defined as recurring monthly expenses where the amount owed stays at a set rate. An example of this type of cost is a monthly bond or rental payment.

  • Variable costs: Are those costs that vary each month based on usage or your changing needs. A good example of a variable cost is the cost of electricity, monthly groceries, and petrol.
  • Discretionary costs: Are optional costs that are incurred for nice-to-have items such as a gym membership and entertainment. These are usually the first costs to cut if you are under financial strain.
    Once you have calculated your total monthly costs you subtract your total expenses. The money that is left is known as your disposable income. 

If you do the above and there is no money left or worse you are having to live off credit to make ends meet, it may be time to take a more serious look at where you can cut costs or save money.

Cutting Costs

Many households’ expenses exceed their income which is why one of the biggest stressors amongst South Africans is financial stress. In this section, we look at ways you can improve your financial situation.

After creating your simple budget, you will have a better idea of where your monthly income is being spent. Armed with this knowledge you can make the necessary adjustments to improve your financial well-being.

Below are a few ways you can cut your monthly costs and increase your disposable income:

  1. Cut back on discretionary expenses and limited the amount you spend on eating out and takeaway coffees. You may think that your R25.00 daily coffee isn’t hurting your finances, but those small amounts add up.
  2. Minimise your household expenses such as monthly rental, electricity usage, groceries and bond repayments.
    Reduce your monthly water and electricity costs by getting smart about usage and implementing simple ways to ‘save’ on these utilities.
  3. When it comes to your monthly grocery shop, try to buy in bulk to save or shop around for the best specials. It may take a bit more effort, but the saving is worth it.
  4. If you live in an expensive area with high rental costs perhaps it is time to look at a more cost-effective area or consider renting out a spare room in your home to save more.
  5. If you own your home and bond repayments have become too much, you could consider downsizing to a more affordable option.
  6. Reducing your debt expenses: If you are in debt the cost of repaying the money you owe may feel like a losing battle when you already have nothing left at the end of the month. Chat to a professional about your options. Debt is an enormous problem for many South Africans. There is no shame in getting the help you need to achieve a better financial future for yourself and your family.

Clearing Your Debt

Many South Africans are slaves to debt, and it can happen a lot more easily than most people think. Debt is the biggest hurdle to achieving financial freedom.

The best thing to do when it comes to debt is to get rid of it. However, that is often easier said than done. If you have credit card debts, loans, and other debts; look to consolidate your debt into one affordable payment at a lower interest rate.

The main goal of any debt management is to take back control of your money. There are several debt relief options available to the consumer market but make sure you use the right channels.

If you only have one form of debt but are on a tight budget, try approaching the bank or lending institution and ask them to freeze the account. Next, pay the minimum amount each month until you are debt-free. If your debt is more complex, there are a number of different debt solutions available. If you are unsure which to choose to consider booking a free debt assessment with a registered and professional debt counsellor who will suggest the best solution for you based on your unique circumstances.

Create an Emergency Fund

Once you have managed to get your debt under control the next step is to create an emergency fund. An emergency fund is useful for many reasons and is critical to a well thought-out personal financial plan.

An established emergency fund acts as a buffer to bad debt and provides you with the financial resources you need to deal with unexpected financial circumstances such as retrenchments or unforeseen expenses such as your car breaking down or a burst pipe.

More importantly, an emergency fund gives you options. The trick is to add to it each month as you do with all your other ‘expenses’ and watch it grow.

Importance of a Healthy Credit Record

A healthy credit record increases your chances of qualifying for additional finance when you need it. Before you can apply for any large amount of money you need to make sure you have a sound credit record. This is what lenders look at before extending large amounts of credit, such as car finance or a home loan.

The first step in establishing a good credit record is to know what your credit score is. Next, you can follow the below steps to improve your credit record.

  1. Reduce or clear your debt.
  2. Pay your accounts on time.
  3. Close accounts you do not use.
  4. Use your credit cards sparingly.
  5. Don’t take on unnecessary debt.

There are many more things you can do to improve your financial health and create healthy financial habits, but these few simple budgeting tips that will help you start taking charge of your money today!

Still, feel overwhelmed and don’t know where to begin taking charge of your money?

Why not speak to one of Cyber Finance’s NRC registered specialist for your FREE personalised financial plan by filling out the form on your right.

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