Budgeting is a fundamental money management tool that helps structure your finances to ensure that you plan for expenses and savings. Here are five tips to get it right
We all know that a budget is a plan that helps you get a picture of how much money you receive every month and where it is spent. It’s a way for you to work out how much money they are getting from your various income sources and how you plan to spend it responsibly. If you are not aware of the importance of a budget or do not track your income and expenses, then it is unlikely that you will be able to manage your money effectively to save for your short- and medium-term goals. Dhashni Naidoo, programme manager at FNB consumer education, shares the following tips:
Create and manage a budget – While this seems like an obvious task, many people do not put their budget on paper or in recent digital times on apps or spreadsheets. It is important to write down all your income, expenses (covering both needs and wants) in order to have a clear picture of your finances. This picture enables you to see where your money is going and if you can cut back on some non-essential spending in order to put this money toward your savings.
Define your savings goals – It is important to have a clear vision why you need to save and what you want to save for? Answering both these questions is significant because working toward goals helps us stay committed and it motivates you to remain disciplined in order to reach them. For instance, you may decide that your short- and medium-term savings goals are to save for a fridge and a 3-month emergency fund respectively.
Include savings in your budget – Including savings as part of the budget helps us to develop a habit of putting money away. When you write down your needs or expenses in your budget, include savings as part of your expenses. This way you will not be tempted to save only what is left at the end of the month.
Automate your savings – One of the ways to be disciplined about your savings is to automate your savings. You can do this by what is called “forced” or contract saving. This is where you agree with a financial services provider to take a certain amount from your account on the day that you get paid and put it into a savings product. This is also known as using a stop-order or similar automatic instruction to move the money into a savings account, which means that you won’t be tempted to spend it. You can also increase the amount you save as you get better at it or as your goals change and your financial situation improves.
Be intentional about your spending – This means that once you have defined your goals or what you want to save for, you then need to review your needs and wants to understand if there are any opportunities to cut down on both your needs and wants in order to put that money toward our savings.
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