The 50/30/20 rule in South Africa & other budgeting approaches

Creating a budget is essential for anyone looking to gain control of their finances and achieve long-term financial freedom. However, there isn't a one-size-fits-all approach. Different budgeting methods cater to different financial situations, so it's crucial to find a strategy that works best for your lifestyle and goals.

In this article, we'll explore five popular budgeting methods to help you take control of your finances and reach your goals. We’ll also introduce Meerkat’s free Budget Planner, a tool that can simplify your budgeting process.

1. The 50/30/20 Rule: A Balanced Approach

The 50/30/20 rule in South Africa is a simple and popular method for managing your money. It involves dividing your income into three categories:

• 50% for Needs: This includes essential expenses like rent, utilities, groceries, and transportation. These are your non-negotiable costs.
• 30% for Wants: These are the discretionary expenses that bring you joy, such as dining out, entertainment, or shopping.
• 20% for Savings and Debt Repayment: This portion of your income should be allocated to building savings, paying off debt, and investing for the future.

This method provides a balanced approach, giving you the freedom to enjoy life while still prioritising savings and financial security. It’s perfect for those who want a structured yet flexible plan. However, if you're in a high-debt situation or have significant financial goals, you might need a more aggressive approach.

2. The 70/20/10 Method: Prioritising Needs

If you find the 50/30/20 rule difficult to follow because your living expenses are high, the 70/20/10 method may be a better fit. This approach allocates a larger portion of your income to needs:

• 70% for Needs: Cover basic living expenses and necessary costs.
• 20% for Wants: Enjoy the occasional treat or non-essential purchase.
• 10% for Savings: Set aside funds for saving, debt repayment, or investing.

While this method gives you more breathing room for needs, it may slow down your savings progress. It’s a solid option for those with tight budgets or who live in high-cost areas.

3. Zero-Based Budgeting: Every Rand Has a Purpose

Zero-based budgeting is a more detailed and hands-on approach. The goal is to allocate every rand of your income to specific expenses, ensuring that your income minus expenses equals zero. Here's how it works:

1. Calculate your total monthly income.
2. List all your monthly expenses, including savings and debt payments.
3. Assign every rand of your income to an expense until you've "spent" every rand on paper.

This method forces you to think about where each rand goes and helps you avoid unnecessary spending. While it requires more effort and constant monitoring, zero-based budgeting is ideal for those who want complete control over their money and prefer a detailed, organized approach.

4. Pay Yourself First: Prioritizing Savings

The Pay Yourself First method flips traditional budgeting on its head by prioritising savings and investments before anything else. Instead of paying bills and expenses first, you set aside a portion of your income for savings, retirement, and investments right away.

Here’s how it works:

1. Determine how much you want to save each month.
2. Automatically transfer that amount to your savings or investment accounts.
3. Use the remaining income to cover your expenses.

This approach ensures that you're always saving and investing consistently, even before you spend on anything else. It's great for people who struggle to prioritize savings and want to build long-term wealth. However, this method works best if you already have a handle on your basic expenses.

5. Envelope Budgeting: A Visual and Tangible Approach

Envelope budgeting is a traditional method that uses physical envelopes to allocate money for different spending categories. You withdraw cash for each category and place it in an envelope. For example, you might have envelopes for groceries, entertainment, and transportation. Once the money in an envelope is gone, you can’t spend any more in that category until the next month.

This method is perfect for those who prefer a tangible approach to budgeting. It helps you stay within your limits and avoid impulse spending. While it might seem old-fashioned, the principle can also be applied digitally through various apps that simulate envelope budgeting.

Find the Right Budgeting Method for You

Choosing the right budgeting method depends on your financial situation, goals, and personality. Here’s a quick guide to help you decide:

• If you prefer a simple, balanced approach: Try the 50/30/20 rule.
• If your needs take up most of your income: Consider the 70/20/10 method.
• If you want to track every rand and have full control: Opt for zero-based budgeting.
• If saving is your top priority: Go with the Pay Yourself First method.
• If you need a visual, tangible system: Use envelope budgeting.

Maximize Your Budget with Meerkat's Budget Planner

No matter which budgeting method you choose, having a tool to help you manage your money can make a world of difference. Meerkat’s Budget Planner is designed to simplify the process and give you a clear overview of your finances. With easy-to-use features, this planner helps you track your income, expenses, and savings goals, ensuring you stay on top of your budget.

Take control of your finances today by trying out the Meerkat Budget Planner here. With the right budgeting strategy and the right tools, you can pave the way to financial freedom.

When to Consider Debt Counselling

If you're struggling to make ends meet and none of these budgeting methods seem to work, it might be time to consider debt counselling. Debt counselling is a legal process in South Africa that helps over-indebted individuals restructure their debts and negotiate better payment terms with creditors. Meerkat offers expert debt counselling services that can help you get back on track and regain control of your finances.

Budgeting is the foundation of financial success, but it’s not always easy. Whether you’re just starting out or looking to improve your current approach, finding the right budgeting method is key. And if things get tough, Meerkat is here to help with tools like our Budget Planner and professional debt counselling services.

Who is Meerkat?

Meerkat is a financial wellness company that helps South African consumers do MORE with their money. We help with debt repayment negotiations, provide affordable insurance and help you kickstart an emergency fund.

Fill in the contact form on our website to receive a free callback from the Meerkat team today.