There are many ways to manage your money, but the one common theme is the necessity of creating a budget and using it as a tool to help you achieve financial freedom. When last have you intentionally set aside time to check in with your financial health. Budgeting can be a way to do this.
Budgeting can often be thought of as time-consuming, but it doesn't have to be. Before beginning your monthly budgeting process, it's important to consider your 'why' and what your financial goals are. Is it to save money for a holiday, a down payment on a house or car, pay off debt or perhaps it's to save towards an emergency fund. Whatever your goals are, it's important to establish that before choosing the method for your financial planning.
Once you've chosen a method that works for you, it's also important to check in on a month to month basis to check how you're doing. Are you adhering to the 'rules' or practices of this approach. Do you need to adjust it slightly so that it aligns with your financial reality? These are the types of questions you should have when you check in each month.
In this blog post we'll unpack the different types of budgeting strategies so that you can choose which method suits you best.
50/30/20 Budget
A very common budgeting method is the 50/30/20 budget plan. With this method you would spend 50% of your income or salary on your needs. Here think of your needs as those expenses that you have to pay each month. This could include, but is not limited to your bond or monthly rent, any loans such as credit card debt you have, groceries, electricity, transportation costs and medical aid.
30% of your salary will be set aside for your wants. When you're thinking about your wants, this will include things like your gym membership fees, any money you use for entertainment like dining out or any subscriptions like Netflix or Spotify. Even clothing or retail accounts can be put here. Do you really need that TFG account or is it more of a want?
And, finally, 20% will be used for your savings and paying off any outstanding debts you may have. While loan repayments are seen as a necessity, if you are trying to pay off these loans and you're setting any extra cash aside for this, this should be put in this 20% category.
Any savings goals you have should also fall into this 20% category.
If you are reading this and thinking that way more of your salary is spent on necessities, then perhaps the 70/20/10 method may be better suited for you.
70/20/10 Method
The 70/20/10 method allocates 70% of your salary towards paying for your necessities like your mandatory debt repayments such as your bond or rent. With 20% set aside for any wants you may have during the month. And the final 10% is dedicated for any savings goals or extra debt repayments you may have.
Zero-based budget
With this budgeting method, every Rand and Cent is accounted for. This is usually the traditional budgeting method many people follow. Generally, your income minus all your expenses inclusive of your savings and debt repayments should equal zero. This means you have to anticipate your spending beforehand. The benefit of this method is that you won't have any impulse, unnecessary spending because every Rand has a purpose.
Pay yourself first budget
With the pay yourself first budgeting technique, the most important principle, as the name suggests, is prioritising paying yourself first. As soon as you receive your salary, a set amount should be put aside. A good idea is to have this amount automatically transferred to your savings account. Following this, you should allocate money towards your debt payments and any wants you may have.
A benefit of this budgeting technique is that you don't have to worry about every cent you save, and you rather just prioritise saving first.
Envelope budget
A common budgeting technique that we've seen on the rise lately is the envelope budgeting strategy. With this method, you allocate a set amount of funds towards every expense and want and you dedicate a specific envelope for it. Here you can usually withdraw cash from your bank account and place specific amounts in each envelope. Once you have spent all the money in a specific envelope, you can no longer get any more cash for that particular expense.
A benefit of using this method is you have a real experience and idea of how much money you have to spend on a particular expense. It also helps you avoid impulse purchases or perhaps, you could even have an envelope dedicated to that too.
None of these methods work
If none of these budgeting methods work and you still find yourself unable to pay all your monthly debts and still have a decent living budget after, you may be over-indebted. If this is the case, all hope is not lost. There is a method you can still consider. That method or programme is called debt counselling.
Debt counselling is for people who have tried everything, but still can't manage their debt repayments. If this is you, don't worry. You aren't alone.
Did you know: middle-class South Africans are spending close to 80% of their salary paying for their debts. If you are spending 80% or more of your salary paying for debts, it's very likely that none of these budgeting methods would work for you.
What is debt counselling?
Debt counselling, also known as debt review, is a debt relief programme in South Africa regulated by The National Credit Regulator (NCR). It is for over-indebted South Africans who are unable to keep up with their monthly debt repayments.
A Debt Counsellor will first work out if you really are over-indebted. They do this by conducting a financial assessment based on your income and expenses. If you are found to be over-indebted, they will work out a new repayment plan for you by:
- Consolidating all your debt (making it one, reduced, affordable debt repayment).
Did you know: Meerkat clients can save up to 50% on their monthly debt repayments!
- Negotiating with your creditors to reduce the interest rates on your loans which could end up saving you money on your total debt amount.
Want to know more about debt counselling in South Africa? Read this blog post.
Who is Meerkat?
Meerkat is a financial wellness company that wants to help South African consumers do MORE with their money. We can 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.