Start the year right – with a budget that will help you stay financially sound for the next 12 months. Magdel Louw finds out how
Annemarie Trinder-Smith, a certified financial planner with CSFin, says that the first step to financial freedom is a financial plan; in other words, a budget. This important nugget of wisdom is echoed by the Financial Planning Institute (FPI)’s financial-education community outreach programme, My Money 123, which is focused around the central message that, to achieve your financial goals – no matter how big or small – you will need a plan.
‘With such a plan in place, you’ll stay focused and disciplined, and be much more likely to stick to all of your goals,’ Annemarie says. Just think of it as your ‘financial road map’ – giving you the necessary directions and landmarks to get to where you need to be. ‘It’s the same as with all the other things in life. Without a plan, none of our financial and life goals are ever met,’ she adds.
What should be included in my budget?
All income and expense items should be included, says Annemarie. When drawing up a budget, the first step is to capture incomes and fixed expenses. ‘These you can easily get from your bank statement.’
If you have debt, a debt-repayment plan should be the next step. ‘List your creditors and start by paying off the most expensive debts, such as credit cards, first.’
But, variable expenses that differ from day to day can’t always be seen accurately on your bank statement. To record those, the FPI suggests keeping a daily budget diary in which you make careful note of every single purchase – even that latte you picked up on your way to work.
‘This must be a daily task. So, as you spend, you need to write it up. Don’t try recording it all later, after a few days or once a week – it’s highly likely you’ll forget one or two things. Building it into a daily discipline helps you create an exact record of what it is you spend your money on, as well
as where you waste most of it, so you can pinpoint all of the bad spending habits that most need to be broken,’ says Annemarie.
It’s also a good idea to keep slips of your electronic purchases. You then reconcile your bank statement, budget diary and electronic slips at the end of the month. ‘By the end of the first month, you should already have a clear idea of your spending patterns. You can now adjust your budget to be more in line with your actual income and teach yourself to be more disciplined with your money.’ Once you have your basic budget in place, you can start setting aside money towards saving.
How can I make sure I stick to my budget?
Annemarie says the most important factor that will ensure you stick to your budget is making sure it is realistic to start with. ‘If you set unrealistic goals, you will not meet them and you’ll lose heart. That’s why a daily budget diary is a fantastic way of making sure that budgeting and financial discipline will become an integral part of your life and not just an exercise at the end of the month.’
How can I get back on track if I don’t manage to stick to my budget?
Firstly, identify the areas where you are not adhering to the budget. ‘Make sure the budget is still relevant and realistic, and adjust it if needed,’ says Annemarie. It’s also important not to become discouraged if you deviate a little. Give yourself credit for your efforts and start working straight away to get back to your budget. Importantly, ‘you have to make sure your debt is under control and don’t take on new debt to pay off existing instalments