In his book “The Total Money Makeover” American author and radio host, Dave Ramsey wrote, “A budget is telling your money where to go instead of wondering where it went.”

Budgeting should be simple: Income less expenses

To have a realistic idea of your monthly budget, you need to analyse your spending over three months. Not only do you need to review three months of bank statements and credit card bills, but you also need to write down everything you spend on a daily basis. You also need to take into account your less frequent expenses such as school fees, maintenance and home repairs.

It is also important to include other commitments like payments to support family.

If your monthly expenses bear little relation to what you earn, don’t worry ‒ you’re not alone. Most households are in the same position. The difference is that you are starting to do something about it.

Three different ways to budget

No one method of budgeting will work for everyone but here are three methods to consider.

METHOD 1: The 50/30/20 budgeting rule

The 50/30/20 budgeting rule is a guideline to how you should split your income effectively and focuses on three main categories: Needs, Wants, and Savings.

Firstly, let’s determine the difference between what you want and what you need.

Understanding wants versus needs

What you want equals instant gratification while what you need, equals delayed gratification.

Let’s explain the concept with the “Marshmallow test”. It was an experiment that researchers undertook with kids who were placed in a room, on their own, with a single marshmallow on a plate in front of them.

They were simply told: You can eat one marshmallow now or, if you can wait ten minutes, you get to eat two marshmallows later.

It was an experiment in self-control very few of them could wait ten minutes - most of the kids ate the single marshmallow.

Only some resisted the temptation, and they all got a second marshmallow as a reward.

Unpacking the 50/30/20 budgeting rule

Once you have differentiated between which expenses are wants and which are needs, then allocate 50% of your after-tax income to your needs.

After that, you then allocate 30% towards your wants.  

Paying your debt, your savings, and your investments should account for the remaining 20% of your budget.

Step 1 – Your needs (50% of your budget)

  • Housing (Bond/rent)
  • Water, lights and services
  • Car repayments/Transport
  • Groceries
  • ‘Family tax’
  • Medical aid etc.

Step 2 – Your wants (30% of your budget)

  • Dining out
  • Holidays
  • Shopping
  • Hobbies etc.

People convince themselves that they don’t spend so much on wants when in fact, it makes a big chunk of their expenditure. It might not be large sums of money, but it all adds up!

Step 3 – Your savings (20% of your budget)

Your savings allocation says a lot about debt, it shows that ideally, consumer debt should not even be part of the equation, thereby leaving you with more money towards your savings and investments.

METHOD 2: The Kakeibo budgeting rule

The core of this system is to help you understand your relationship with money as you record everything that is coming in and going out!

When applying the Kakeibo budgeting rule, you need two notebooks: One where you record your income and expected expenses once a month, and the other notebook (preferably one that fits into your bag) where you write every single expenditure you make throughout the month.

There is something profound and reflective about writing down your expenses by hand as it brings you face-to-face with your spending habits, and you can’t lie to yourself.

At the end of the month, you reconcile what is in the first notebook to the daily expenditure notebook.

The Japanese believe this leads to more mindful spending in the longer term.

METHOD 3: The envelope system for miscellaneous expenses

The envelope system is a method of budgeting in which you put money meant for different spending categories in different marked envelopes.

An example list of spending categories could include groceries, transport, utilities, rent, hair/beauty, entertainment, clothes and pet supplies.

The envelope method makes money more real because you are not just swiping plastic such as your cheque, debit or credit card.

Because the money is categorised, it curbs overspending and you know exactly how much you have earmarked for spending on each category.

Once the envelope is empty, you know that you have no more money left for that specific category.

The strength of the envelope method is that it forces you to set goals and stay in touch with how much you spend and save. If you constantly ask yourself “Where did my money go?” then this system is for you.

OTHER HANDY TIPS TO KEEP IN MIND

Setting a realistic grocery budget

Look at the last two to three months of your grocery spending and find a ballpark average of what you typically spend on groceries each month.

Let’s say you typically spend R400 a month on groceries, and you decide to run for groceries every 10 days or roughly 3 times per month. R400 divided by 3 is about R134, and that’s your new grocery budget for every time you hit the store.

Another tip is to always build your grocery list before you get to the store or rather order online. This forces you to buy what you need and not what you want.

Use a household budget calculator

For a budget to work, it has to become part of your lifestyle, not just something you do once in a while!

This household budget calculator will appeal to those who like using excel spreadsheets!

Be realistic, and remember to reward yourself

A reason why people fail in sticking to their budget is because they’re not realistic. They’re either too lax or too strict with themselves.

Keep a bit of money aside to treat yourself, especially when you’ve reached certain milestones like paying off your all your clothing accounts.

Forming good habits can be draining and treating ourselves can play an important role to boost our self-command - and self-command helps us maintain our healthy habits.

Being ready to get things done – that’s Africanacity. And we’re here for it.