IN A NUTSHELL A budget is a tool to make your money work for you and not the other way around.
Think of each rand you own as a minion that works for you. You are the boss. If your minions sit idle, chances are they’ll cause chaos, but if you plan and assign them each a specific task, like Gru, you can achieve great things.
That plan is called a budget. When you budget you give each rand a job, ‘Your job is to buy electricity’, and another rand ‘Your job is to buy me tickets to the next big soccer match!” That means you’re not spending your money mindlessly – you are putting it to work making your life better. You are in control of your money.
How does a budget work? Imagine you divide the monthly money you receive into various envelopes marked food, clothes and savings. If you go shopping for sneakers you only put the clothes envelope in your handbag and that’s all you have available. If you spend it all on one very bling cap, you have to wait for the next month before you can buy any other clothing.
But first things, first. How can you logically divide your money? In an ideal world you cover your living costs (the basics or needs), save for emergencies and the future (savings), give to someone less fortunate and have a bit of money to spend (wants).
You don’t have to use physical envelopes; you can create digital envelopes. Some bank accounts allow you to create savings pockets or different accounts to keep money that is designated towards different things separate.
Nolwazi explains…
You could also opt for more than one bank account. For example, Olwatu earns R2 000 pm. His wages are paid into his FNB account. Each month he transfers R600 spending money into his Capitec account.
Olwatu could go even further and divide the spending amount into four and only withdraw R150 spending money per week.
Play by the rules
The 50/30/20 and 1/3 budgeting rules are simple yet effective ways to take control of your finances. With the 50/30/20 rule, you allocate 50% of your income to essentials like housing and groceries, 30% to spending (Wants) such as entertainment or takeaways, and 20% to savings or paying off debt, striking a balance between living in the present and preparing for the future.
The 1/3 rule, often used for more straightforward planning, divides your income into three equal parts: one-third for needs, one-third for wants, and one-third for savings or debt repayment.
Both methods help you create a structured plan for your money while allowing some flexibility to adapt to your lifestyle and goals.
Use our calculators to see how you could potentially allocate your income in your monthly budget.
Let’s get practical…
The 50 / 30 / 20 Rule
50% Needs / 30% Wants / 20% Savings
Rule of Thirds
1/3 Savings / 1/3 Needs / 1/3 Wants
Like many things in life, to budget is simple but not easy. It takes a lot of discipline to stick to a budget. If your friends are getting new braids but you’ve already spent your Wants envelope for the month, you must wait for next month. If you can master your thoughts every time such a challenge arrives, in the long run, your money will work for you.
Click here to learn more about budgeting.
Sources
Manage your money like a grownup: The best money advice for teens, Sam Beckbessinger
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