Gaining Confidence by Budgeting
Article by Jonathan Weimers
How often have you heard the phrases: “That apartment is only for the rich”, “I can’t afford that holiday” and “I’ll be able to afford it in another life” when friends, family or people on social media discuss anything to do with money?
Does this mean that your dreams are in a permanent state of being on-hold? Does it mean you cannot ever have that holiday in Zanzibar? Does it mean you cannot afford that coffee machine you takealot-stalk online?
Many people express views and opinions that are very limiting to what they can accomplish in life. Especially when it comes to money. When I ask such people why they cannot get the things they want, then people always have an array of interesting reasons.
What becomes more interesting is when people who in reality have more than enough money to do the things they want start to say they cannot afford it. This tells me there are several issues at play.
One of those issues is a psychological trap, which prevents them from knowing what they are doing with their money that limits them and how they can take control of their financial situation.
One way to free yourself from any psychological trap to do with money is to budget.
Here’s what budgeting will do:
1. It will give you a clear understanding of how much money you have coming in.
2. It clarifies where that money is going (what are you doing with it).
3. As a result of the first two points, you will then see how much money you have available for you to play around with.
4. Lastly, it allows you to control the flow of your money: Should you stop it from going into expensive car maintenance, alcohol and fast food takeaways to channel it into getting you to the coastline of Zanzibar with dolphins?
Once you know these things, you will start building confidence. Financial confidence.
You will be able to take control of your money instead of letting it control you. Then when you think about flying to Zanzibar to walk through the spice plantations and enjoy the warm clear ocean, you won’t say it’s only for the rich. You will say: “let’s see when we can go”.
Let us explore these points:
Money Coming In:
Drawing up a budget requires you to include what money you have as income. For many South Africans this will be salaried income (your job) but it can also include things like your average business income if you have a business or income from passive means like the kinds I would have mentioned in some of my previous investment articles (if you haven’t read those, scroll down to look for my investment strategy article and whether or not you should be investing in South Africa right now).
To make sure you have a complete picture of what’s going on, use gross amounts (the total amount of income before deductions for anything).
This is what you have before anything happens to that money. Take note of how much it is and what are all the sources of income you have. Depending on what they are, you may have to consider the consistency of that income.
Do you get it every month like a salary, is it fixed income or variable (meaning same amount every month or does it change based on your performance or sales etc) and lastly will it eventually run out (like a custom fixed term savings account you get interest payments from monthly but it’s on a 6 month term).
Money Going Out:
Now the sad part. You have to put down all the expenses you have. Everything. Where does your money go every month? Home loans / rent, car payments, insurance and medical aid are usually the standard big expenses. Look for anything else you may have on debit order. Once those are noted then start factoring in other expenses that may not be fixed monthly amounts. As an example, groceries vary per month so try averaging them out to get an estimate of what you spend every month.
Once you have everything down, be sure to bracket them into fixed expenses and variable expenses so you have a clear view of what is set in stone versus what will increase or decrease slightly depending on other factors.
Money Left to Play With:
Now that you know how much money you have coming in and how much is going out, you can see what you have left over.
Depending on what you had in the previous two categories, you may want to think a little deeper about this one and put up a guaranteed fixed amount you will always have left (your minimum that you come away with) as well as range that will account for the impact of your variable expenses.
If its too confusing to think about then just leave it at what is the minimum amount of money you are guaranteed to always have each month after expenses.
Controlling Your Money:
Now its time to be the boss and take control. The first thing to do is to evaluate what is going on. Are you happy with what you are seeing? Does it make sense to you to spend that amount of money on restaurants and takeaways?
Or are you spending a lot of your salary on cigarettes and alcohol? Worth it? How about that gym membership you aren’t really making use of?
Decide what is important to you and start cutting other things out. This is also a great opportunity to think about whether certain things should cost you as much as they do.Spending a lot on groceries? What are the things you are buying that are driving those costs up?
Lots of chips, chocolates and unhealthy goods? Are you happy to keep spending that or would you rather cut it for cheaper, healthier produce? Let us call this process optimising your spending.
Go through your expenses and decrease them where you can. Once you have optimised your spending and cut out anything unnecessary or wasteful, it is time to think about what you want.
Want that holiday in Zanzibar? Find out what are the kinds of costs involved and determine your plan of action to get there. Based on the money you have left to play with from the previous step and the amount of money you could take back by optimising your spend, what would you need to put away every month to get you to the crystal clear waters of Zanzibar? R500 a month for 12 months?
Doesn’t sound that impossible does it? Especially if you were spending that on something you don’t need every month and now you got all that money back. Maybe you found a deal that requires saving R1000 a month. Either way, you now know what you need to save and in what time frame. Your dream holiday is now guaranteed and not the fantasy others claim it is.For a little extra help on making your money grow, consider using the various options I have mentioned in my investment articles to help you get to your goals faster.
To Wrap Up:
Budgeting is a powerful process that can cut your unnecessary expenses, get you money back that you were losing and give you the opportunity to get what you want, whether it’s the holiday example I used (not advertising for Zanzibar) or if you wanted to save for your child’s university fund, a new car or a new investment that will make you even more money.
If you are one of those people constantly saying that things cannot be done, I challenge you to use this tool, my investment strategy article and my ways to invest in South Africa article to take control and get what you want.
Disclaimer: the information presented in this article does not represent the views or opinions of my employer in any way. I am not a registered financial advisor and encourage you to discuss these financial tools with your own financial advisor or broker. We have a great one in our team - check them out here ---> Contact Attooh! Financial Wellness and let them know we sent you!
