Consumers can leave their budget in 2022 and prefer to start 2023 with a spending plan.
A spending plan sounds so much more appealing than a budget, making it easier to follow during economic times when consumers often have more debt than income.
The words we choose to describe the challenging requirement of good money management could be a deal maker or breaker, especially with the spending of the holiday season and a longer time between paychecks, says Farzana Botha, segment solutions manager at Sanlam Savings.
A recent Sanlam poll showed that 70% of South Africans will run out of money before the end of the month and only 18% are able to stick to a spending plan. It’s no surprise, then, that the realities of the holiday season could prompt many consumers to put better money management at the top of their New Year’s resolutions list.
We all know that budgeting and sticking to it is the foundation of financial well-being, but why is it so difficult? “It starts with redefining the way you think about money. A budget can have negative connotations, restricting us or depriving us, and understandably we probably won’t stick to what feels like a chore.”
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How to redefine the way you think
Botha says shifting your mindset from a budget to a spending plan could be the right way to positively shift your attitude towards financial well-being.
Here are her five steps to being financially savvy in 2023:
Step 1: Understand the “why”.
Whether your goal is to actually earn your salary by the end of the month, save more for retirement, or pay off debt, you need to plan and stick to it. Planned expenses are a tool for navigating the long January and each month that follows, but remember that the tone for a financially savvy year begins in January.
Step 2: Get started
A spending plan outlines what you need to do with your money each month to reach your financial goals, starting with knowing exactly what you earn and how much you owe. To determine this, make a list of fixed monthly expenses, such as rent or deposit, car payments, and school fees, as well as fluctuating expenses, such as hospitality. Use this information to calculate how much money is coming in and how much is being spent each month.
Step 3: Know what you need and what you want
If you need something, it’s essential, like a roof over your head and food for you and your family. A need, on the other hand, is a nice-to-have, like the daily cappuccino to go or lunch at work. It is important to recognize the difference and to plan for the needs and desires accordingly. A good practice to determine this is to scan last month’s bank statement and break down all your expenses into “needs” and “wants”.
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Step 4: Break the bad habits
It’s easy to develop bad habits that can mess up your spending plans, such as B. Grocery shopping without a list, impulsive online shopping sprees, or payday culture, the temptation to spend as soon as the paycheck hits your account. Did you know that a daily cappuccino to go can add up to over R1,000 a month? Identify these habits and then develop a plan to break 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 needs, 30% to wants, and 20% to savings and paying off debt. Other methods include the envelope system, also known as cash stuffing, where you use envelopes or a binder to organize your budget, one for each budget category. There are also many useful 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, it’s an overwhelming burden of debt, but others worry because they don’t have a financial safety net if something goes wrong. Or you may just struggle to pay your bills every month.”
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Get out of debt
While easier said than done, the path to stress-free financing 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 owed on each account and put any extra money you can into the smallest debt until it pays off is. Then take the amount you paid for 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 says the pandemic has shown us how quickly life can change. “Start building an emergency fund to help you deal with life’s adversities. The sooner you start saving and investing, the healthier you will be financially. Get the right insurance to protect your loved ones and your most prized assets in the event of a disaster, and make sure you have a last will and a joint will. These small actions give you more control and give you peace of mind.”
Protect your income
Your greatest asset is by far your ability to generate income. Ask yourself how long you can meet your financial obligations if you lose your income due to an accident or illness. According to Ntulini, income protection should be a top priority for every working South African as it provides security when we need it most. It pays all your other insurance, medical assistance, household expenses, and school fees when you are unable to earn.