It is my first personal finance article of 2022.
I sincerely hope that you got some value out of the information supplied by this column, especially during 2021. What a year!
On the financial front we saw huge rises in petrol, food and other necessities. Jobs were affected and SASSA was a circus!
But more than anything, it was evident that many South Africans remain ill-informed around money.
– Spending vs Income:
This is one of the basic concepts of personal finance. Crazy as it sounds, many people are not aware of how much they truly earn or spend. To get a better idea of your spending versus income, make the effort to track it, write it down and then dissect it.
– Income: Review your payslip
Some people have been with a company for so long, that they no longer have any idea what their gross (before deduction) salary, or their net (after deduction) salary is. They also have no idea how much is being deducted, and for what.
Now is as good a time as any to review your payslip (the physical or electronic one) and get a solid idea of how much money you have available to spend on necessities, debt and luxuries every month.
Expenses: Get all your till slips together and write it down.
Often it is not the “big spend” items which see us lose our way, but rather the everyday “small spends” which we fail to keep track of. It will do you good to physically get a notebook in which to write down all your daily expenses – even if it just for one month. This will at least give you a better idea of your overall spending.
– Write down how much you spend on chips and cooldrink at work every day, how much you spend at the spaza shop for bread, milk and essentials and even include the change (in coins) that you give your child to take to school.
Split your expenses into different categories.
Once you have written down all your daily expenses, add your other expenses. To get the best results for this exercise, create categories for your various expenses.
Fixed expenses: These are expenses that remain constant from month to month, like rent, bond, insurance premiums and set payments.
Variable expenses: These are expenses that vary in amount from month to month. The best examples of these would be groceries, utilities and daily expenses for work or downtime.
Periodic expenses: These expenses may be fixed or variable, however they are separated as they are paid on a less regular basis. This could be done quarterly, every six months or even yearly. Items that fall in this bracket include school fees, taxes and some insurance premiums.
– Debt: Your monthly debt repayments may vary, but must still be paid every month.
Non-essential / luxuries: You have to be completely honest with yourself when making a note of these types of expenses. Denial about how much you spend on non-essentials is most often what leads to household budgets not working out.
Once you have a true reflection of your income and expenses, you can identify where the problem areas lie in your household finances.
Drawing up a household budget may seem boring or of no use, but let January 2022 be the month that you start trying. Chances are, you won’t stick to the budget in the first few months – and that’s OK. Just get into the habit of trying to.
Paying off your debt
Everyone keeps preaching that you should pay your debts, but no one ever explains how to do it.
Here are the most common debt repayment methods.
With this method, you pay your smaller debts first. Psychologically, this method works well because there is a real sense of achievement when you can square up an account, close it and move onto the next one.
With this method, you pay down debt with the highest interest rate first. You’ll save money in the long run by keeping interest charges under control.
First pay the minimum payment on all of your debts.
Secondly, put any additional money toward the account with the highest interest rate. Then continue to do this until the high-interest account is paid off.
Thereafter, take the minimum payment you were paying on the first debt, as well as any additional cash, and put that toward the account with the next-highest interest.
I am very hesitant about pressuring people to save money, especially when they don’t have money for necessities, much less money to save.
I look at all the savings “tips and advice” given by financial gurus and I get quite angry because I know that the advice simply cannot apply to most South Africans who are struggling to survive.
So I am suggesting we go back to basics and do it “old school”.
Take a 2litre cooldrink bottle and start filling it with change.
If you manage to put a minimum of R20 a week in there, by next year this time, you should have at least R1000. You can’t tell me you wouldn’t be able to use an extra R1000 right now.
Small changes in how we work with our money can have large payoffs.