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Sound road map to financial wellness
Opinions expressed in this article are those of an author. Please consult an authorised financial service for financial advice.
By Mpho Sibanyoni
When a family member, especially one from a poor household, secures a new job, hope is revived. This is as a result of an expectation that the standard of living will improve.
But the strength of hope will be determined by the amount of money the individual will be earning. With increases in the price of fuel and the weakening rand, this makes life difficult for families dependent on a breadwinner, especially one whose income is limited. However, budgeting is important. It makes you aware of how and on what you spend your money. Having this empowering knowledge is helpful.
When an emergency strikes, you can zoom into the list, chuck out the less useful items and use the money to plug the gap. A budget also presents an opportunity to know the health status of your finances, how much you are left with at the end of the month and the amount you can save. People who keep copies of their budgets for the whole year are also able to see the items on which they spent their annual income and see how price increases are affecting their budgets.
Roz Thomas, managing director of Hill+Knowlton Strategies SA, advises that when you draw up a budget, you should list income from your normal job and other sources.
"Write down your monthly salary after tax. If you earn any other money, for example if you buy and sell clothes, then add this to get a total of all your income every month," she said. Next list your expenses. "Get your bank statements from the last three months and take note of expenses.
"Now categorise them into fixed expenses and changing expenses. Fixed expenses include things such as your rent, travelling costs, medical aid, and insurance. These are necessary expenses that you can't do much about in the short term.
"However, once you have a detailed budget, you can perhaps look at decreasing some expenses, like renting a cheaper flat, or sharing a place with friends," Thomas said.
"Now, list your expenses that change every month such as your data, groceries, clothing and entertainment, among other things."
Thomas said next work out your income minus expenses.
"If you have money left over after subtracting expenses from income, then you should save this money or use it to pay off your debts.
"However, if your monthly expenses are more than your income, then you need to make a plan. Increasing your income is not often possible in the short term, so you should have another look at your expenses and decide where to cut costs," she said.
Deciding if your expenses are things you need or things you want is very important.
Things you need are food, accommodation, travelling costs, water and electricity, etc. However, although you can't do without them, you can look at spending less on them, such as buying more affordable food, carpooling to work or sharing accommodation. The things you want, but do not necessarily need, are items you can cut to save money.
Examples include not buying too many clothes, or not going out every weekend.
Thomas advised you draw up your budget listing what you plan to spend for the next month.
Although you are likely to be cutting back, Thomas advised that you "make sure you give yourself a treat every month; you work hard for your money, so it's important you enjoy some of it."
Read more here https: https://www.sowetanlive.co.za/business/money/2018-07-19-sound-road-map-to-financial-wellness/