At the end of February this year, we all will in some way or another need to account for how we’ve spent our money this past year.
You’ll gather all your income together, find out what deductions you’ve made during the year, whether any other expenses are tax deductible, and submit this all to SARS.
Then will come an anxiety driven period to find out if we got it right, and SARS owes us, or if we got it wrong, and we owe SARS!
This is, in a way, a drastic form of a once-off personal budgeting exercise. By spending a little time now, and accurately forecasting your income, expenses, etc now, you’ll soon be in a position to understand how you will look financially for the year. It will often bring the facts out, that we spend to much on unneeded consumables, that we potentially won’t make ends meet, and will show us if we’ll have enough money left to invest.
Any Excel Spreadsheet, Mac Numbers or Google Sheets, has basic budgeting templates to use. There are also more sophisticated on-line programs as well as apps. I’ve listed some below.
Which ever method you decide to use, put a budget in place to guide your financial spending habits. Don’t forget to take into account, the often forgotten once-off items such as vehicle licenses, post box fees, TV license, and any other once items you may have. These “forgotten” items quickly add up and mess with your planned budget.
I’ll provide some basic ratio’s to keep in mind in the next article.
The basic idea is to get your expenses below your income. This is your annual profit. You’ll use this annual profit for investments such as retirement, etc.
You can increase your income in numerous ways, including getting a raise (you hope), working overtime, getting a second job or starting a hobby that pays.
You can decrease your expenses by relooking at your short term premiums and getting a better price, holding off on that new car, purchasing a lower valued car to reduce your monthly repayment, cooking at home more often, etc.
I also suggest looking at using 2 bank accounts. Have one for your salary to be paid into, and for all your debits orders to go off from. Leave the bank card for this at home, give it to your spouse, or break it.
Transfer your monthly spending money into the second account. Once this runs dry, you’ve got no more money for the month. This can help prevent overspending on a monthly basis.
Pay yourself first!!!
Most clients that I speak to, mentally take their income, minus their current expenses, notice they have nothing left, and don’t invest towards a retirement annuity or tax free savings account. If you’ve budgeted for the year and can see what your theoretical profit will be, commit to saving that first.
Once you've done that, and the debit order is in place, you’re less likely to spend it at the end of the month on unneeded luxuries. We’re used to making do with what money we have, so often when other expenses rise, and we don’t get a pay increase, we figure it out.
Put money away as one of your first debit orders for the month, and you’ll soon make a plan to live off the rest.
I'm a Life-First financial adviser looking to develop long term relationships with my clients.