How to balance your budget
25 July 2016
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On mobile, on digital, on demand, this is Old Mutual Live, the Money Coach edition. Hello and welcome, my name is Chris Gibbons. With me in the Old Mutual Live studio is John Manyike, Head of Financial Education at Old Mutual. John welcome, good to have you with us.
John Manyike: Thank you Chris.
CG: Read any of the business press and it’s clear, I need to balance my budget. Just like the Minister of Finance, they say I need to balance my budget. Good, I’d like to be like the Minister of Finance, he seems to have a very well paid job. But I’m not and to be honest, I don’t really know what that phrase ‘balance my budget’ really means. That’s why in this edition of Old Mutual Live Money Coach, we’re going to be looking at how to balance your budget. John, let’s start with the basics, what exactly is a budget?
JM: A budget is a plan on how you’re going to be spending your money. But it must reflect the money coming in and the money going out. Basically a plan on how you’re going to spend that money.
CG: And that is just like the Minister of Finance, the thing he does every year in Cape Town.
JM: Absolutely and we to can do the same. You can have an annual budget, reviewed monthly.
CG: John, you have five steps that are going to help me make a budget, where do I begin?
5 steps to making a budget
JM: Okay, step number one is you need to learn what you earn. You need to look at your payslip and your bank statement and be sure how much is coming in there. It’s not to know that no, my take home is R10 000, but it might be R10 800 and that R800 makes a big difference.
You need to know what you earn, how much is coming in each month into your bank account and so on. Because your gross over, as we know, is not necessarily what you take home. Because there’s tax and there may be other salary deductions and so on.
CG: All right, so learn what you earn, step number two?
JM: Step number two, know what you owe, record your expenses. In other words, write down all your expenses. Understand what you spend your money on currently, what do you owe. Work out your income minus your expenses.
CG: Step number three?
JM: Reflect on your spending. So are you living beyond your means? What can you sacrifice or change, what do you need to adjust? Are you saving enough and stuff like that. you need to reflect on your spending.
CG: Number four?
Drawing up your budget
JM: Number four, you need to then draw up your budget. With all the information you have from step one to three, now you need to draw up a budget. You might want to use a template or if you’ve got access to a spreadsheet, you can create your own budget in that spreadsheet. To reflect what the money coming in and the money coming out.
What is your household disposable income? If you are living with a partner, you need to work out in the household, what is the household income. It’s not about you doing a budget on your own, and your partner doing a budget on their own, you need to actually have a joint budget. It’s better when you do it together, so you can share some of the responsibilities. Plan your fixed, in other words, you can categorise your budget into fixed, variable and irregular expenses and then adjust it from there.
CG: And hopefully at the end of that process, there’s a surplus.
JM: For many people that surplus doesn’t come. You might have to do certain things to adjust it to the extent that –
CG: We’ll come to that in a moment, step number five?
JM: Step number five, you need to review your budget. So it means at the end of each month, you need to compare your budgeted expenses to your actual expenses. Are you sticking to your budget? One of the biggest challenges a lot of people have, they actually do a formulate a budget. But sticking to it is another thing. It’s very difficult for a lot of people because it requires a lot of discipline.
Use your budget to help eliminate debt
CG: So we’ve gone through the five steps and in that review process I have learnt that whoops, I don’t have a surplus, I actually have the reverse. I am spending more than I’m earning. Can I use my budget to help me cut expenses?
JM: Absolutely. Once you’ve got a clear picture of what your expenses are, there are a couple of things you can look at to decrease your expenses. Firstly, you need to decide, in your list, what are the things that constitute a need. What are things that are just a want, things you can do without.
CG: Explain that in more detail, needs and wants?
JM: For example, –
CG: I need a new BMW, don’t I?
JM: You want to need it.
CG: I want to need it, okay. I don’t really need it do it?
JM: As our Green neighbours, Nedbank would say, so it’s things really you can do without. Can you do without that car that you just mentioned. I’m saying that because a lot of people drive them, so can you do without it? Really?
Let’s take entertainment for example. If you know you spend about R500 a month on booze, do you need booze at that amount or can you live without it? In some instances, you might a few changes here. I’m a big fan of lunch box as opposed to buying take away all the time. Once in a while, yes, we buy a take away, but really, you should actually be packing a healthy lunch box from home because you save money.
How a little can land up costing you a lot
Let’s take for example, if you’re spending R50 a day on take away at work, that’s R250 per week, that’s R1 000 a month, that’s R12 000 a year. Of course, you might take leave at some point, but you’re looking at close to R12 000. Imagine if you’re saving R12 000 and then plus interest over 10 years, it’s a lot of money.
CG: Look at the cost of two slices of bread, some lettuce, tomato, a filler, nowhere near R50, not even close.
JM: We always have leftovers, in most cases I suppose, from the previous night. So for those who smoke, you might consider cutting down or even stopping, it’s good for your health. Re-evaluate yourself on cost. A lot of people spend a lot of money on airtime and data and so on. So you need to review, how much are you spending on your cellphone. What are the things that you need to do differently, even timing some of your personal calls?
If you can do late hours where maybe the rates are cheaper, and so on, you need to look at different ways of doing that. Save on electricity for example, turning of unused appliances or lights. In the winter season, even look at how you use your heaters and geysers and stuff like that.
CG: I start to get the picture now. John, do you have any other budgeting tips that we can give our listeners, up your sleeve?
Don’t kid yourself with your budget
JM: I think you need to be very realistic about your budget. Because sometimes we try and play the good person, you want to be a good person by drafting a budget. But if you’re not realistic, you’re going to discourage yourself.
Be realistic about the changes and adjustments that you want to make in there. So you don’t discourage yourself. Make sure you include savings as an expense, there’s no excuse not to save simply because you’ve got all these competing priorities. Especially when it comes to children’s education and your retirement. Because you don’t want to retire from retirement because you didn’t save up enough money. Align your budget with your goals, very key, but more importantly, review your budget regularly.
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. John, let’s just recap those five key points to putting your budget together.
JM: Okay, number one, we said, learn what you earn. Meaning, look at your payslip, your income, your bank statements. Number two, know what you owe, recording your expenses, writing down all your expenses and so on. Knowing who you owe to and so on.
Number three, we said reflect on your spending. Are you living beyond your means? Do you need to sacrifice certain things? Like I said there in the other episode, you need to decide whether you want to stay married to those brands or do you want to divorce them. If you can get the same product that can do the same thing.
Draw up a budget, very important. You might want to use a template, you might want to use an Excel spreadsheet. These days there’s apps that can help you to do that. Plan your fixed variable and irregular expenses and be able to track those over time. Number five, review your budget regularly.
CG: This has been another edition of Old Mutual Live, the Money Coach edition, my name is Chris Gibbons, with me in the Money Coach studio, John Manyike, Head of Financial Education at Old Mutual. John, if the listeners want more information, where would they go?
JM: You’re welcome to join our digital community on Facebook, like our page on, On the Money Financial Education Programme or follow us on Twitter, @OM_OnTheMoney.
CG: John Manyike, thank you for that. get in touch any time if you have any questions for either John or myself, topics you want us to discuss here on Old Mutual Live Money Coach. Please feel free to send them direct to me at email@example.com, we would be delighted to hear from you. Old Mutual Live, on mobile, on digital, on demand.