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Extra Virgin -  July 2011
 

Keep your Home Contents Safe

FeatureWhen it comes to your money, you need to MANAGE it like you would a business - draw up a budget of your monthly income and expenses. Working with a personal budget puts you in control of your money. It can also help you achieve your savings goals. And if you're in debt way over your head, a budget is a proven way of alleviating your situation.

So make a commitment to your financial future and start a budget today. Here's a step-by-step guide to doing it:

Step 1: INCOME

Write down your net income (this is your salary after deductions), including any other sources of income you may receive. If you are getting paid on a weekly or fort-night basis, work your budget out to indicate the monthly amounts as lenders generally work on a monthly basis

Step 2: EXPENSES

Write down all your expenses, in as much detail as possible. This should include everything such as your day-to-day expenses, transport, bills, food, etc.

Step 3: SAVE SOMETHING, NO MATTER HOW SMALL

Make an overall assessment of your existing savings and investments, and set your savings goals for the future. You can now decide whether you are saving enough money to achieve your short, medium and long-term goals. You may not be able to afford all your savings goals right now, so you will have to prioritise. But the important thing is that your goals make it into your monthly budget.

Step 4: SET LIMITS

Work out a spending limit for each expense category. In other words, determine what you should spend in any given month. This is a difficult process and will take some shuffling of expenses. Be realistic when setting limits. A figure that is too low will result in a feeling of deprivation, and that leads to failure, as seasoned dieters will know!

Here are a couple of common benchmarks to guide you in determining the "reasonableness" of your expense limits.

* Rent or bond repayments should be less than 30% of your total monthly expenses.
* Monthly entertainment costs should be less than 10% of total expenses.
* Your car loan repayment should be no more than 20% of your gross monthly income.

Step 5: UNFORESEEN EXPENSES

Remember, you will have to put some money aside each month, called a provision, to cater for any sudden expenses. This could be for car maintenance, Christmas holiday, and a general provision to cover home maintenance and emergency costs (like a burst geyser). A vexing area in budgeting is dealing with the numerous ATM withdrawals needed to fund small cash expenses (magazines, bread, chocolate and the like).

The easiest way to handle this is to give yourself a weekly cash allowance, and to limit your ATM cash withdrawal to, say, every Wednesday. This requires a fair dose of self-discipline because once your weekly allowance is used up you shouldn't withdraw any more cash - or you will fall back into overspending mode.

Step 6: COMPARE IT

At the end of each month compare your actual expenses to your budget. Ascertain why you overspent in certain areas and take corrective action (which could range from eating more home-cooked fare to cutting up your credit card). You can make adjustments to your budget but don't be too generous as you will defeat its purpose. If you are within your budget, the surplus can make good any shortfall in another month.

Remember the most important thing in budgeting is sticking to it!

Step 7: SAVE WHERE YOU CAN

Cut unnecessary expenses. As much as we like to enjoy some leisure time and enjoy what life’s pleasure every now and then, we need to be realistic and cut unnecessary expenses and concentrate on the necessities.

  1. DSTV - reduce your package to something more affordable or even cancel it for now until such a time you are back on your feet again
  2. Transport - try finding the most affordable form of transportation to work and back, you can ask a colleague to travel together, maybe one week with your car and the next with his/her car
  3. Groceries - work out your grocery budget by writing down only the necessary goods and leave the luxury out of your budget.
  4. Plan everything as realistic as possible and work your way through your debt plan by following your budget as strictly as possible.
Tips to save on costs:

  1. Send an SMS rather than make a call and aim to cut your cellphone bill by 10%
  2. Reduce consumption of electricity and try to save at least R100
  3. Plan birthday lists well in advance and limit gifts to a budget
  4. Plan a menu and shop to that – you will save at least 15% on groceries and unnecessary waste
  5. Shop around for car insurance every year.