How does a modern woman like you actually learn how to live within your means?
Well, you first need to start with mastering your cash flow (income and expenses). Learn to understand where your money is coming from and where it’s going each month. Look at the year ahead and consider which months will be the most expensive (Consider the expenses associated with thewinter months, birthdays and anniversaries, Christmas bonuses for your staff at home?)
Do you have kids? Remember that they have two uniforms which may need to be replaced as well as birthday parties, it’s easy to go overboard. Whatever your goals are; try set money aside for these events from the beginning of the year.
Getting a handle on your budget involves these simple steps:
- Your fixed expenses – living expenses that you must pay every month
- Working out your variable expenses and how you can make the most of it
- Allocating money to your long and short term savings
- Allowing yourself the much needed wiggle room so that all work and no play doesn’t make Jane a dull girl
- And lastly tips to help you stick to your budget and avoid spending triggers.
You start with your Monthly Net Income; which is your gross income minus taxes and deductions like medical aid. Basically it is the money that your employer pays you every month. Set some goals, priorities, and pin point your weak spots so that you can set up your budget.
What are your fixed expenses?
Identify your living expenses that you must pay every month. These will include your rent or bond repayments, vehicle repayments, insurance, utilities, school fees and any store accounts or debt payments. Budget for these expenses first, subtracting their total from your monthly income after taxes. Whatever is leftover is what you have available for variable expenses. Fixed Expenses should total on average 50-60% of your net income.
Try making the most of your variable expenses.
The cost of living has increased quite drastically in the last couple of years and so your daily variable expenses like grocery shopping has become difficult to control. Make a list of what you need for the month and see where you can save. Sometimes splitting your list among various stores where you’ll get the best for your buck is worth the extra effort
If you have children these variable expenses can… vary drastically. Children need clothes – casual and uniforms (they grow too fast) and they need all sorts of school equipment (they tend to lose and break them). Uniforms are very expensive and as you need two sets (winter and summer), consider also shopping at the school second hand shop. After a couple of months all the uniforms look the same. Buy good quality school shoes that will last longer and most importantly teach your kids to take care of their goods, if they lose something they must find it or go to school with casual items. They may get into trouble but this will make them more careful with their belongings.
How much can you save each month?
Once you’ve determined how much to set aside for fixed and variable expenses, it’s time to look at savings. Savings can include long-term goals, like retirement, or short term goals, like a holiday. Identify everything that you want to save for this year, and then order them in terms of importance.
Some goals, like retirement, you should save for every month. Other things, like travel or large expenses, can be saved for one at a time. Once you’ve met one savings goal, you can move on to the next one.
When you decide what you’d like to contribute to each goal, the best way to stay on track is to make saving compulsory. Set up an automatic transfer to put the money directly into savings as soon as it lands in your bank account. You won’t risk spending it accidentally, and you will ensure that you make monthly contributions towards your savings.
Have a fund for the children which you can add to monthly or when you have surplus. Cut back on the many birthday and Christmas gifts, rather put the cash into this savings fund. Ask your familiy to do the same. Limiting branded items will go a long way to reduce costs and create more savings.
Where does your budget have wiggle room?
Managing your finances is awesome, and cutting down your spending to save more is a great goal. But if you are on a strict budget all the time, with no room for any lapses or fun purchases, you risk getting “budget burnout” and slipping back into old, bad habits.
To avoid that, identify the places where you can cut yourself some slack. Maybe you’re giving up eating out but can still treat yourself to a cappuccino once or twice a week. Maybe you’re giving up DSTV, but you and a friend can split a Netflix subscription. Allow yourself a few inexpensive extras and sticking to your larger financial goals will feel much less stifling. Remember that entertainment costs don’t have to be high, try renting a DVD and have a picnic in your lounge instead of going to the movies. It’s loads more fun and you’ll be free to make as much noise as you like.
Finally, wiggle room also means planning for the unexpected. It may seem smart to put every extra cent into savings and retirement, but what happens when your car breaks down and you don’t have any money for the repair? Leave a little wiggle room for surprise expenses, and you won’t just start a budget, you’ll stick with it.
Lastly, what are your spending triggers?
A lot of financial management is about cutting spending – reducing your insurance bill, avoiding sales, eating out less. But all the small cuts in the world won’t help if you don’t know your spending triggers.
Spending triggers are those moments or circumstances that make you pull out your credit card and break the rules of your budget, even when you have the best of intentions. If you want to cut your spending, take some time to identify these triggers and come up with a plan to eliminate them.
If you can’t resist a coupon code when it shows up in your inbox, then you should unsubscribe from promotional emails. If you always want to eat out when you’re stressed, create a new, free routine for unwinding after a hard day at the office. Do you always spend more when you go shopping with a certain friend? Come up with other activities the two of you can do together and leave your credit card at home when you go out. And the old saying is still true, don’t do your monthly grocery shop on an empty stomach and stick to your list! Avoid the middle isles (where chocolates and biscuits are kept), your wallet and waistline will thank you for it.
Once you’ve identified your spending triggers and come up with ways to avoid them, you’ll have a much easier time sticking to your budget.