Bud­get­ing is easy

The Star Early Edition - - NEWS -

WHILE many peo­ple sim­ply don’t have the time to do the re­search that goes into cre­at­ing a bud­get that works., ac­cord­ing to African Bank, draw­ing up a bud­get isn’t the in­ten­sive and con­fus­ing task a lot of peo­ple think it is and the ap­pli­ca­tion of a sim­ple rule is one sure way of or­gan­is­ing your fi­nances.

“It’s the 50/20/30 rule,” ex­plains Al­fred Ramosedi, African Bank Group Ex­ec­u­tive: sales and mar­ket­ing.

“Ba­si­cally, this rule states that 50 per­cent of your bud­get should go to­wards pay­ing your fixed ex­penses, 20 per­cent to­wards your sav­ings and in­vest­ments and, fi­nally, 30 per­cent should be re­served for any ad­di­tional costs that vary from month to month, such as petrol, gro­ceries, en­ter­tain­ment, eat­ing out.”

A prac­ti­cal ex­am­ple is if, for in­stance, you earn R16 000 per month. This would mean that a max­i­mum of R8 000 should be ded­i­cated to pay­ing your fixed ex­penses, R3200 to your sav­ings and in­vest­ments and R4 800 to your ad­di­tional, vary­ing ex­penses.

It is best to break this down even fur­ther, adding cat­e­gories to these three sep­a­rate por­tions of the bud­get. For ex­am­ple, rent, med­i­cal aid and car in­surance to your fixed ex­penses.

Ramosedi points out that many South Africans make a fa­tal fi­nan­cial er­ror. In­stead of ad­dress­ing their over-ex­pen­di­ture in their bud­get, they’re likely to use money meant for sav­ings and in­vest­ments or even rent and elec­tric­ity money to fund en­ter­tain­ment and other lux­u­ries for the month.

“The key to fi­nan­cial free­dom is be­ing strict about record­ing all of your cash out­lays through­out the month and stick­ing to the lim­its that you have set out for your­self. A bud­get is a lot of trial and er­ror but once you find what works, you will be well on your way to safe­guard­ing a worry-free fi­nan­cial fu­ture,” con­cludes Ramosedi.

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