Budgeting is easy

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.