With more of us having to rely on credit to get by, a shift to better budgeting is clearly needed.
Picture this: After weeks of hunting around for the perfect pair of boots, you finally find them. They’re beautiful, and just the right colour. The only problem is – they’re twice the price you had budgeted for. Do you (a) put them back and carry on searching for a more affordable pair or (b) do you pay for them with your credit card? Most will probably go with option B. And therein lies the problem.
We live in a materialistic society which has conditioned us to think we must have the best, now. This has distorted our attitude towards money to the extent that over spending and living on credit are now the norm and even encouraged.
To put things into perspective, Statistics SA places the number of South Africans who rely on credit accounts at 19 million. Things become more sobering when viewed alongside the basket of average ‘essential’ costs. According to Statistics SA, the average South Africa household currently spends around 12.8% of their income on food, 32% on housing, electricity and water bills and 17.1% on transport. Collectively, this amounts to approximately 61.9% - food for thought when you consider that these are just some of the basic essential costs.
Clearly a shift to better budgeting and saving needs to take place. But how to address the matter? More often than not, the wrong kind of financial habits are learned early on in life from our parents. These habits become ingrained and are hard to break out of which inevitably leads to debt and other related financial problems such as being refused a bond or not being able to send your children to a good school.
A good place to start is to define the difference between ‘wants’ and ‘needs’. Simply put, needs can be defined as things which have to be paid. Rent, a bond, car payments, food, levies, medical aid and education costs are all examples of essential items which fall under this banner. Wants can be defined as items which don’t actually serve any other real purpose other than satisfying your immediate need for gratification.
Once you’ve honestly identified the differences between your needs and wants, you can draw up a realistic budget and start implementing small changes in your spending routine such as the following:
· Freeze leftovers to avoid buying take away on a whim
· Withdraw enough cash to last you a week – and only a week. No credit cards allowed
· Pay off the credit card with the highest interest rate first
· Take your lunch and coffee with you to work. Cafeterias and takeaway coffees can eat into your budget in a big way
· Put money aside for savings every month. Ideally this money should be automatically debited which will offset the temptation to spend it as the month progresses
· Use comparative price sites to ensure you’re getting the best deal
· Consider subscribing to a less expensive DSTV package
· Take a good, hard look at the car you drive. If the repayments are high and it’s expensive to maintain, you might have to consider trading it in for something more affordable
· Consider using your home loan to boost your savings profile. This entails increasing your repayments on your home loan above the minimum requirement which will not only decrease the term of your bond but will give you access to funds at a far lower interest rate than a personal loan should you need it
For comprehensive advice on how to better manage your money, speak to a financial advisor and sign up to budgeting and financial education programmes. Doing so will enable you to take the first steps towards real financial freedom.