Managing your finances means knowing how much money comes in, how much goes out, what you’re spending it on, and where you can save. Here’s how to set up your budget in 5 steps.
1. Determine your financial goals
What are you working towards? Write down your financial goals and how much money you need to achieve them. Whether it’s a deposit on a home, university fees, or you want to pay off all your credit card debt, it’s important to have a number to work towards, to help you make the right financial decisions.
2. Calculate your monthly income
Add up all the nett income you receive. Be sure to include your salary as well as any other earnings, such as the money you make from your side hustle, be it a blog or home bakery business.
3. Add up your expenses
Make a list of all the amounts that go out of your account every month. Start with your fixed monthly debit orders, then consult your bank statements and receipts to get an idea of your other expenses.
4. Track your spending
Subtract your expenses from your income. If you’re spending more than you’re making, it’s time to do some cutting. To identify opportunities to trim your spending, you should know exactly where your money goes. The best way to do that is to record every transaction you make in a month (you’ll be surprised how quickly that R25 cup of coffee you buy on your way to work every day adds up).
Put your expenses into categories, such as: entertainment (which will include streaming services), utilities (rates, taxes and electricity), transport (car payments and fuel costs), health and medical (medical aid and prescriptions), communication (internet services and cellphone contracts), groceries, etc.
After a month of tracking your expenses and recording every transaction, you’ll have a clearer picture of your financial wellbeing. Spending R500 on takeaway coffee? R750 on a gym membership you never use? You will suddenly find ways to save.
5. Make adjustments
Now that you know how much money you spend every month, and what you spend it on, you can start to budget. Expenses like bond and rent payments are fixed, so you will need to make adjustments to your variable expenses in order to find ways to save.
If you spent R5,000 on groceries last month, would you realistically be able to bring that figure down to R4,000? If you can, you’ll free up R1,000 per month to put towards your financial goal.
Let’s say your goal is to go on holiday.
You need R20,000 to do so.
You earn R15,000 per month.
Your expenses add up to R13,500 per month.
Deduct your expenses from your income and you’re left with R1,500 per month to put towards your goal.
That means you could be jetting off on your dream holiday in just over a year!
Need help making a budget? Contact Octogen today.