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Budgeting 101

If you battle with budgeting, you are probably thinking: “ I’ve tried budgeting, it just doesn’t seem to work!” To tell you the truth, I have had my fair share of struggles with budgeting.

Let’s be frank, very few people get a kick out of creating a budget. But a budget is the cornerstone of a healthy financial life. A budget is telling your money where to go and what it should do. A budget puts you back in a position of power because you intentionally decide what you will spend your money on.

“A budget is telling your money where to go instead of wondering where it went.” – Dave Ramsey

Budgeting should be simple. Income less Expenses.

Tips around budgeting:

  1. Automate, Automate, Automate

Automating your budget allows you to operate on autopilot! It takes away the stress of having to remember who gets paid when, how much etc, but more importantly, automating your budget allows you to save and invest diligently.

I cannot tell you how many times I have said to myself “this month, after having paid all my other expenses, I will put away R1,000 into a saving or an investment” but never do!

Automating your investments specifically, makes them a priority and not just an afterthought you have when everything else has been ticked off the long list of expenses.

  1. Use the envelop system for miscellaneous expenses

The envelope system is a method of budgeting in which you put money meant for different categories in different envelopes. The point of using envelopes is two-fold: one, there is something powerful when you spend physical cash and not just swipe plastic i.e. your cheque or credit card, and two, because the money is categorized and you know exactly how much you have earmarked for spending, say on entertainment, once the envelope is empty, you know that you have no more money for that category.

The envelope method just makes money that more tangible.

Although it is one of the best ways to budget, it is not practical for large expenses like your bond, car payment etc (these expenses are better off automated), it is ideal for smaller expenses like groceries, entertainment and miscellaneous kids’ needs.

If having multiple envelopes sounds ancient or you are worried of carrying cash around, you can use multiple bank accounts to do the same; each account for a different purpose. You will just need to watch out for bank fees here!

I personally use the envelope system for my entertainment and eating out, it works brilliantly for me because my eating out spending was getting out of hand. Seeing the money getting thinner and thinner in the envelope is sobering. I even ask my family and friends to come join me at my house for lunch or dinner instead of going out when my envelope starts to run low!

  1. Use budgeting apps

Budgeting apps are a great way to keep track of how much you are spending and can quickly alert you when you need to cut back. One such app is 22seven (www.22seven.com)

You can easily download it on your app store.

  1. Use the 50/30/20 Budgeting rule

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

Categorize your budget into:


Housing (Bond/rent)

Water & Lights and services

Car repayments/Transport


‘Family tax’

Medical aid etc.

You first have to differentiate between which expenses are wants and needs, then allocate 50% of your after-tax income to your needs.


Dining out



Hobbies etc.

You then look at your wants and allocate 30% towards those. I am often entertained when people draw their budgets. Oftentimes we underestimate just how much of our money goes to wants. 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. The coffee in the morning, dining out with friends here and there, the gym membership you hardly use etc. it all adds up!


Then your savings, investment and paying off debt should at least account for 20% of your budget.

This 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.

Let’s look at an example:

Say your after-tax income is R20,000, this means that 50%(R10,000) will be your needs; 30% (R6,000) will go towards your needs and lastly 20% (R4,000) for your savings, investments and paying off debt.

There is something powerful when you budget this way, using percentages and not just the Rand amounts. If you think of it, say, looking at a grocery bill or car repayment of R2,000 and R4,500 respectively, doesn’t quite hit home. Because in relation to the bigger picture which is your income, what is the percentage?

Now in our example, of the 50% that is meant for needs, it would mean you are 35% away from reaching the limit! (R6,500/R10,000).

Looking at your budget in terms of percentages can be more sobering.

It also allows you to see where the chunk of your money is going. This quickly informs you where you can cut back and have the biggest impact on your overall finances. Think of it as focusing on the big wins vs. not buying your daily dose of coffee on your way to work type of cutting back.

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

Happy budgeting!

*This article first appeared in City Press



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