Consumers can leave their budget in 2022 and rather kickstart 2023 with a spending plan.
A spending plan sounds so much more appealing than a budget, which will make it easier to follow in economic times where consumers often have more debt than income.
The words we choose to describe the challenging requirement of good money management could be a deal maker or breaker, especially with the expenses of the festive season and a longer time between pay cheques, says Farzana Botha, segment solutions manager at Sanlam Savings.
A recent Sanlam survey showed that 70% of South Africans run out of money before month end and just 18% are able to stick to a spending plan. It is, therefore, no surprise that the realities of the festive season may prompt many consumers to put better money management at the top of their new year’s resolutions list.
We all know that creating and sticking to a budget is the foundation of financial wellbeing, but why is it so difficult? “It starts with reframing your money mindset. A budget may have negative connotations of limiting or depriving us and understandably, we are unlikely to stick with something that feels like a chore.”
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How to reframe your mindset
Botha says reframing your mindset from a budget to spending plan may be the right way to positively shift your attitude towards financial well-being.
Here are her five steps to be financially savvy 2023:
Step 1: Understand the ‘why’
Whether your goal is to make your salary actually last until the end of the month, save more for retirement or pay off debt, you have to plan for and stick to it. Planned spending is a tool you can use to navigate the long month of January and every following month but remember that setting the tone for a financially savvy year starts in January.
Step 2: Get started
A spending plan details what you need to do with your money each month to reach your financial goals, starting with knowing exactly what you earn and how much you owe. To determine this, draft a list of fixed monthly expenses, such as rent or bond payment, car payments and school fees, as well as those that fluctuate, such as entertainment. Use this information to calculate how much money comes in every month and how much goes out.
Step 3: Know what you need and what you want
When you need something, it is vital, such as a roof over your head and food for you and your family. A want, on the other hand, is a nice-to-have, such as that daily take-away cappuccino or lunch at work. It is important to realise the difference and plan for needs and wants accordingly. A good exercise to determine this is to scan last month’s bank statement and divide all your expenses into ‘needs’ and ‘wants’.
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Step 4: Kick the bad habits
It is easy to develop bad habits that can derail your spending plans, such as grocery shopping without a list, impulsive online shopping sprees or payday culture, the temptation to spend as soon as that pay cheque hits your account. Did you know that a daily take-away cappuccino can amount to over R1 000 a month? Identify these habits and then develop a plan to overcome them. If you do not know where to start, speak to a financial adviser.
Step 5: Find a spending plan method that works for you
Your spending plan can be based on the 50/30/20 rule, where 50% of your income goes to needs, 30% to wants and 20% for savings and debt repayments. Other methods include the envelope system, also known as cash stuffing, where you use envelopes or a binder to organise your budget, one for each budget category. There are also many useful resources online, including a spending plan template from Sanlam.
Also try these tips to be financially savvy
Zanele Ntulini, chief marketing officer at life insurer Bidvest Life, says the first step is to understand why you feel anxious about your finances. “For some consumers it is an overwhelming debt burden, but others worry because they do not have a financial safety net for when things go wrong. Or you could simply be battling to pay your bills every month.”
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Get out of debt
Although this is easier said than done, the road to stress-free finance starts with a plan to reduce debt, especially short-term debt where you pay high interest rates. Set a budget and stick to it to enable you to discover the magic of the Debt Snowball where you pay the minimum balance owing on every account and put any extra money you can into the smallest debt until it is paid off. Then take the amount you were paying for that debt and apply it to the next biggest debt. Before you know it, a lot of your debt will be paid off.
Create a financial safety net
Ntulini says the pandemic showed us how quickly life can change. “Start building up an emergency fund to help you deal with life’s curveballs. The earlier you start saving and investing, the more financially healthy you will become. Put the right insurance in place to protect your loved ones and your most valuable assets should disaster strike and make sure you have a last will and testament together. These small actions will give you more control and allow you to rest easy.”
Protect your income
Your biggest asset by far is your ability to earn an income. Ask yourself for how long you will be able to meet your financial obligations if you lose your income due to injury or illness. Ntulini says income protection should be the number one priority for every working South African as it provides security when we need it the most. It pays all your other insurance, medical aid, household expenses and school fees when you cannot earn.