Consumers can leave the budget in 2022 and start 2023 with a spending plan.
A spending plan sounds more attractive than a budget, which will be easier to follow in economic times where consumers often have more debt than income.
The word we choose to describe the challenging requirements of good money management can be a make or break, especially with the cost of the festive season and longer periods between pay cheques, says Farzana Botha, segment solutions manager at Sanlam Savings.
A recent Sanlam survey shows that 70% of South Africans run out of money before the end of the month and only 18% are able to stick to their spending plans. Therefore, it’s no surprise that the reality of the festive season can lead many consumers to put better money management at the top of their New Year’s resolution list.
We all know that creating and sticking to a budget is the foundation of financial well-being, but why is it so difficult? “It starts with changing the mindset of money. Budgets can have negative connotations to limit or reduce us and understandably, we will not stick with what feels like a chore.
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How to reframe your mindset
Botha says that changing your mindset from a budget to a spending plan can be the right way to positively change your attitude towards financial well-being.
Here are five steps to becoming financially savvy in 2023:
Step 1: Know the ‘why’
Whether your goal is to make your paycheck last month, save more for retirement or pay off debt, you need to plan and stick to it. Planned spending is a tool you can use to navigate through January and every month that follows, but remember that setting the tone for a financially savvy year starts in January.
Step 2: Get started
A spending plan details what to do with your money each month to reach your financial goals, starting with knowing exactly what you have and how much you owe. To determine this, list your fixed monthly expenses, such as rent or bond payments, car payments and school fees, as well as those that fluctuate, such as entertainment. Use this information to calculate how much money is coming in each month and how much is going out.
Step 3: Know what you need and what you want
If you need something, it’s important, like a roof over your head and food for you and your family. A want, on the other hand, is a nice-to-have, such as a cappuccino taken every day or lunch at work. It is important to realize the difference and plan for your needs and wants. A good exercise to determine this is to scan last month’s bank statements and divide all expenses into ‘needs’ and ‘wants’.
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Step 4: Get rid of bad habits
It’s easy to develop bad habits that can ruin your spending plan, such as shopping without a list, impulsive online shopping or payday culture, the temptation to spend as soon as the paycheck hits your account. Did you know that your daily cappuccino can cost you over R1 000 a month? Identify these habits and then make a plan to overcome them. If you don’t know where to start, talk to a financial advisor.
Step 5: Find a spending plan method that works for you
Your spending plan can be based on the 50/30/20 rule, where 50% of your income goes to necessities, 30% to wants and 20% to savings and debt payments. Another method involves the envelope system, also known as cash stuffing, where you use an envelope or binder to organize your budget, one for each budget category. There are also many resources online, including a spending plan template from Sanlam.
Also try these tips to be financially savvy
Zanele Ntulini, chief marketing officer at life insurer Bidvest Life, says the first step is to understand why you’re worried about your finances. “For some consumers, this is a huge debt burden, while others worry about not having a financial safety net when things go wrong. Or you may be struggling to pay your monthly bills.
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Get rid of debt
Although this is easier said than done, the road to stress-free finance begins with a plan to reduce debt, especially short-term debt where you pay high interest rates. Set a budget and stick to it so you can discover the magic of the Debt Snowball where you pay the minimum balance on each account and put extra money towards the smallest debt until it is paid off. Then take the amount you paid on that debt and apply it to the next largest debt. Before you know it, most of your debt will be paid off.
Create a financial safety net
Ntulini said the pandemic showed how quickly life can change. “Start creating an emergency fund to help you overcome the curve of life. Before you start saving and investing, you will be financially healthier. Put the right insurance to protect your loved ones and your most valuable assets should a disaster strike and make sure you have last will and testament These small actions will give you more control and allow you to rest easy.
Protect your income
Your greatest asset today is your ability to earn an income. Ask yourself how long it will take you to meet your financial obligations if you lose income due to injury or illness. Ntulini said income protection should be the number one priority for every working South African because it gives us security when we need it most. Paying for all other insurance, medical aid, household expenses and school fees when you can’t afford it.