OPINION: Essentials of budgeting

Having a budget is a good start – it allows you to track your spending and is a plan for how money will be spent. But over time adjustments may be necessary to ensure that your approach to budgeting is in line with what you aim to achieve.

As the cost of living escalates, it can directly impact your approach to budgeting, because an increase in costs has a direct impact on income.

Therefore, we need to assess our expenses and determine how we can reduce expenditure on non-essential items.

Wants are things we don’t really need to survive – they are nice to have. And so we need to be prudent and disciplined about reducing expenditure on luxuries or non-essential items.

There are two types of expenses that must be considered when drawing up a budget and these include:

* Fixed expenses, which that occur regularly and remain unchanged over a certain period. For example, rent, bond, school fees, insurance payments.

* Variable or changing expenses, which you make every month. However, they change depending on your usage. For example, airtime/data, electricity, water, pay-TV subscriptions, groceries. When we are required to adjust and cut down on certain expenses, it is usually easier to cut down on variable expenses.

* Emergencies: It’s important to keep some money for emergencies that may come up during the month. For example, if you have a burst tyre and have an emergency savings fund, you won’t have to worry about having to borrow to replace the tyre.

* Budget to save: It is important that you cater for savings in your budget by allocating a portion of your income to savings. Make sure you transfer your saving portion to a separate savings account. In this way you ensure the money is not available and you won’t be tempted to use it on unnecessary expenses.

Many worry about going over budget, whereas they should focus on keeping within their budget. Consumers should actively manage their budgets to reduce the possibility of expenses exceeding their income as this helps track of where money is spent.

A budget is an essential part of money management and to see its benefits it must be practised consistently. Also, important to note is that while you may have a personal budget, consider having a family budget as well that can help manage family finances. Most households are feeling the pressure of the ever-increasing cost of living, but even during tough times a budget is of utmost importance.

Savings is often lost in the overall budgeting process because of overwhelming demand to spend money.

Dhashni Naidoo is the manager of consumer education at First National Bank.

PERSONAL FINANCE

[“source=iol”]