Bayport Blog

How to budget for big expenses

Whether it is school fees for the kids or your own career development, upfront planning is the key to balancing financial health and education needs.

The arrival of spring in South Africa is also the time when education is top of mind for many people. Parents have to enrol their children in the school of their choice, and those who want to go to university or other tertiary institutions have to submit their applications. In many workplaces budgets are being finalised and if your company cannot subsidise your further studies, you have to add career development to your personal budget.

Once you have made the commitment to learning and education, how to pay for it is the next question. It can be overwhelming to think that in January you have to put a big amount of money on the table to get your child into school or university (and even that short course you want to do is expensive!). But don’t despair; you can manage the financial stress with good planning.

The first thing to know, is that budgeting for a big expense is not the same as budgeting for your monthly expenses. Because it doesn’t happen every month, you have to think about, and treat it, differently. Here’s how to do it.

Plan ahead

Work out exactly how much money you are going to need. Back to school is not only about the school fees; there are also uniforms, school supplies, transport and school lunches to consider. Get a list from the school so that you don’t miss anything.

The same applies to other forms of education: contact the institution and get as much information as possible, including whether the full fee has to be paid upfront or if you could pay it in instalments. The advantage of instalments is that you have more time to get the money together. However, many institutions give good discounts for full payment upfront. Make sure you get all the information so that you can make a decision that works best for your financial situation.

When you know what you need, find out if some of the items are available second hand. For example, does the school have a second-hand clothing shop, or can you get some items from friends whose older children go to the same school? Contact second-hand bookstores to get textbooks, or find out if it would be possible to share resources with other students.

Having done all this work, you will be left with an accurate picture of the amount you need to get together.

Bring in the budget

Divide the total amount you need into the number of months you have left to get it. That shows you how far your monthly personal budget needs to stretch so that you can save enough to cover the big expense. The sooner you do this, the more months you will have to save. Even if it will be impossible for you to save all the money you need, every rand you save is a rand that you don’t have to find somewhere else.

Knowing how much you need to put away to get to your goal, you can now rework your budget to reduce all the expense you possibly can in order to free up the cash you need to save.

Save like a pro

Interest, and especially compound interest, is your biggest ally when you are saving. Even if you only have three months in which to save, look at putting your money into a notice deposit account. This is a savings account where you have to give notice when that you want to withdraw your money. The notice period is usually 32 days. The benefits are twofold: you get better interest than in an ordinary savings account, and you can’t get to the money easily to spend it on other things.

Borrow if you have to

If you see that you will need a personal loan to make up the shortfall between what you can save and what you need, be sure to plan carefully. For instance, the loan repayment should not be more than the amount you have been saving – that way you know you can afford it. Start shopping around early on so that you have enough time to consider your options and make the borrowing decision that is best for you. And always settle the loan as soon as possible to save on interest.

Paying big expenses is best done bit by bit, and with a plan. Bayport’s Information Centre has very useful information and practical tools, such as a personal budget tool, you can use to help you plan for paying next year’s education bills without putting your financial health at risk.