Part 4: Money management methods that work

This is the fourth in a seven-part series on how South Africans can survive a tough economy and build wealth in the face of inflation and price increases.

What is a budget?Well, why don’t we start with what a budget is not? It’s not a plan to balance your expenses with your income. Because we all know that no matter what number we put into the ‘income’ block, we can find ways to ‘balance’ it with expenses. Ladies, y’all know what I’m talking about right? It’s something I was particularly talented at for many years ;)

A budget then, is a plan to spend your money. Yip, it’s that simple. It’s how you become the boss of your money and tell it exactly where it needs to go (or when it needs to be spent) until there is no more left.

And in case you’re thinking – but hang on a second – what about saving? Don’t worry we’ve got it covered. You can download our weekly spend plan template [hyperlink to downloadable doc] to see exactly how we prioritise the really important bit of paying yourself first.

Why is a budget important?A budget will help you prioritise your spending and manage your finances every month. Many people don't realise that if they spend more than they earn, they will slowly sink deeper into debt every year (until it snowballs out of control and you’re left considering debt counselling or insolvency). Instead, what happens when you have a working budget (and by working I mean it works for you – literally!) you can use it to help you prioritise when and where you can spend the money you DO have without jeopardising your future ability to build wealth.

Why doesn’t your current budget work?Two reasons:

1. Most people don’t understand that budgeting is a verb. That means it’s a doing word. Looking at a piece of paper or spreadsheet once a month is not budgeting. That’s drawing up a plan. Managing your spending is the process of continually checking how your spending is tracking compared to the original plan you had drawn up.
2. It’s hard work. This is not something that’s going to happen without your involvement. So yes, you’re going to need to put aside some dedicated time to your money management going forward but we promise you it’ll be well worth the effort.

What should you do instead?For most people, the thought of sitting down to do a budget is not only daunting, it’s scary enough to put off doing indefinitely. That’s why we recommend you do two things: firstly, you need to rename your budget as a spending plan, because actually that’s what we’re going to teach you to use. And secondly, we suggest you break the process down into two steps over a period of time:

Step 1: Tracking your expensesFirst all you’re going to do is track what you spend for 2 months. Write it down, use an App or keep track on a spreadsheet like this one – whatever you’ll find easiest to use is what’s important here, so that you consistently track what you’re spending throughout the month. This exercise is simply about you noting when, where and what you spend your money on. After you’ve noted what you’re spending for a month, break it down into week 1, 2, 3, etc. and tally up the total for each week to give yourself an idea of how much you’re spending when. Include any purchases made on credit and highlight these purchases in a different colour – this makes it easier for you to see that it’s not your money you’re spending, but someone else’s.

Step 2: Managing your spendingOnce you’ve successfully tracked your expenses it becomes that much easier to start managing your spending going forward. Here’s how we suggest you do it:

1. Move all your debit orders to the first day of the month. This ensures that you’ve taken care of all the big, monthly expenses and now you simply need to manage your variable costs like food, petrol and entertainment throughout the rest of the month.
2. Take what’s left of your income and divide it up into 4 weekly amounts (based on how you typically spend your money, as you discovered in Step 1.
3. Open up a transactional account and transfer your weekly spend amount into that account on a set day every week.
4. Use the weekly spending plan template (see download) to help you manage this process.
5. Correct and modify your spending on a weekly basis now, as you work your way through the month.

There you have it! You never have to use the dreaded ‘b’ word again AND we’ve given you an easy to use tool to get on top of your spending every single month. Let us know how you get on?

The views and opinions expressed in this article are those of the authors and do not necessarily represent or reflect the views of 1Life or its employees.