We all would like more money, and most of us believe that more money will solve our money problems. Sadly, this is not true. All money gurus agree that it’s not how much money you have that makes a difference, but how you manage your money. From having a budget to getting out of debt, healthy money habits should be your focus.
Many people don’t like talking, or even thinking, about money. There are different reasons for this, ranging from feeling unsure around money, to believing that there’s no need to think about it too much – you get it, you spend it, end of story.
However, the great thing about getting involved with your money, is that you will soon discover ways to keep it for longer, spend it better and save more of it. As a result you will feel empowered and more in control of your life.
Before you even draw up a budget, you have to get clear on your priorities. Once you know why want to improve your financial situation, it is much easier to stick to your plan.
Your values determine your money priorities. Money must support what is important to you. For example, if education is more important than travel, you will budget to pay school fees before you plan a trip. If being healthy is important to you, you will have more money in your budget for fresh fruit and vegetables than for take-aways. If not getting into debt is a priority, you will budget to save and build up an emergency fund.
Only once you know what you value and what you want to achieve, can you do your financial planning in a sensible way.
This sounds very obvious, especially for those of us who earn a fixed salary. However, while you know how much you earn, do you add in other money inflows? For example, research has shown that households that receive social grants, often don’t see that as an income. Also, maybe you bake cupcakes and sell them to friends or colleagues, or someone gives you petrol money to fetch their children from school. Make sure to add these extras to your income. If you don’t record it, it is easy to spend this money without even noticing. You can only manage your money when you keep track of everything that comes in.
The flipside of knowing exactly how much money comes in, is knowing exactly how much you spend and on what you spend it.
The easiest way to do this, is to write down every cent you spend. Keep your store slips to remind you, and make a note of expenses for which you don’t get a slip, such as tips for car guards, paying for parking or buying something from a vendor at a traffic light. Update your expenses list at the end of every day, when you still remember where you went and what you did.
A simple spreadsheet is a good tracking mechanism. As you enter the amounts, the sheet updates and you can see the running total of your spending.
Importantly, record your spending in different categories, such as rent and utilities, debt repayment, groceries, entertainment, transport, eating out, and so on. You have to know what you spend your money on before you can change your behaviour.
Getting out of debt has to be a priority. Set time aside to look at your full debt picture – how much do you owe, to whom, and which debts are the most expensive?
Consider your options. For example, debt consolidation could save you a lot of money in interest.
Squeeze as much cash as you can from your current expenses to settle your debts as quickly as possible.
Now that you know how much you earn and how you spend it, it’s time to make a plan. In financial planning terms, this plan is called a budget.
Use your money priorities, your total income and your expenses detail to draw up your budget. If your current spending patterns do not support your priorities and goals, plan to do things differently by allocating money in your budget according to what you want to achieve.
Your first budget will probably not be perfect, but stick to it for at least a month. You need that long to see if it works for you. Anything less, and you won’t see the benefit of keeping an eye on your finances.
At the end of the month, reconcile your expenses and compare them to your budget and your money priorities. If necessary, tweak your budget and do it all again. This is money management in action!
Emergencies are a fact of life and you should plan for them in your budget. You never know what might happen. You or your partner could lose a job or have a medical emergency.
Having money to deal with problems as they come up will help you feel more secure and – importantly – will help you stay out of debt.
How you put money away for emergencies is up to you, but it is a good idea to have a separate account for it so that you don’t end up using your emergency funds for other things. Another tip is to save first, before you start spending.
Emergency funds aside, you need to build up savings and start investing as early as possible. Start with an interest-bearing savings account, and move on to investments, such as a retirement annuity. Even if you are still years away from retiring, you must consider the future. Your money stands to grow the most if you start as soon as possible.
Free money comes to you in many different ways. Your medical aid, for instance, might have a plan where you can get one free basic dental screening a year, or a free pap smear if you’re a woman. Alternatively, you might qualify for discounts or special offers through your company, or save lots of money through grocery store loyalty programmes.
Make sure you know about these benefits and make use of them. It’s free money.
Once you find a money process that works for you, stick with it. You know what you have to do; how you do it, is your choice.
It’s tempting to try the next best thing, especially if it promises to be easier, simpler or faster. However, if you’re in a rhythm that works – you’re saving money, meeting financial goals and building security – keep going. Your focus will pay off.
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