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Your 5-minute budget makeover

7 February 2022
4 minute read
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You can banish the budget blues! Your budget is a tool to help control your expenses and save and invest money for your future goals such as creating generational wealth. But budgets tend to easily get out of hand! Certified Financial Planner and co MD at Harbour Wealth, Melissa Dyer, came up with seven questions to ask yourself to check that your budget meets your needs. How will your budget rate?

1. Are you struggling to stick to your budget?

This is fairly common, but not a good sign – especially if it happens on a regular basis! A budget is only a useful tool if it is realistic, and you follow it.

You must be able to comfortably stick to your budget, says Melissa. It shouldn’t be too much of a strain.  If it is, you need to review and change your budget. Reduce non-essential expenses and savings contributions, so that you don’t feel deprived or stretched. Or find ways to increase your income, such as starting a side-hustle.

2. Are you tracking your spending?

Ever withdrawn money from an ATM one week and wondered where it went the next week? Track it and you’ll find out! Tracking means tracking everything from bank accounts and credit cards to cash transactions.

Melissa says most of their clients, no matter how significant their financial wealth, benefit from tracking their spending. This lets you see if you are spending on things you don’t use, want or need, or didn’t even know about! And then you can find items in your budget to cut down, cut out and perhaps increase savings!

3. Are you saving, or have you saved, two years of income in a rainy-day fund?

Unexpected expenses happen! It’s just part of life. So emergency or rainy-day savings are critical.

Two years may seem like a lot, but Melissa says just look back at the last two years. COVID-19 was financially tough. A two-year rainy-day fund would have made them a lot less financially stressful.

Full marks if you have this. If you don’t, work towards achieving it over time. And, Melissa says, keep these savings in a fund or savings account such as a money market account that is easy to access.

4. Are you paying off short term debt or is it growing?

Short-term debt is expensive so keep it to a minimum. Pay it off and avoid taking on too much debt. A warning sign is if you are using one debt to pay another or are finding it difficult to make payments on time.

Melissa says be realistic about what you can pay off. Most of us would love to clear the debt, but it will take time. Paying down debt will also give you extra cash in your budget in a few months!

5. Are you protecting your income?

It is your greatest asset, says Melissa. Your rainy-day fund will help, but include insurance such as income protection, disability cover and life cover in your budget to make sure you are financially secure if the unexpected happens.

6. Are you saving as well as investing?

The difference: Saving will save your money but won’t grow your money. Investing will grow your money.  This is because savings earn interest only, whereas investments earn capital returns and dividends, which means investments can grow at a much faster rate than savings – and importantly faster than inflation! Investing includes investing in ETFs, unit trust funds, the stock market, and equities on platforms such as EasyEquities.

Melissa says you must be doing both! Saving will help you achieve short-term goals, but for longer term goals such as retirement you need to be investing!

7. Are you having regular family meetings about money?

These are a must as your family needs to be on board and committed to your budget!

Melissa says that as a family you need to decide on your money values. For example, you value education and will save and adjust your budget so your children have a good education. Meet regularly, Melissa suggests every six months, to check in, review your budget and plan ahead!

You’re ready to make your budget your best money friend!

So how did your review go? Okay, ready to do better, or happy? Keep in mind that managing your money is a journey, there will be good moments, bad moments and setbacks. That’s okay. Keep on working towards your goals and managing your budget and you will get there! And you’ll be setting a great example for your children so that the generational wealth you build will be preserved for them and their children!

Is there a right amount to spend on certain items in your budget?

The 50:30:20 rule says that you should spend:

  • 50% of your budget on essentials such as food, housing, education, transport
  • 30% of your budget on non-essentials such as entertainment
  • 20% of your budget on savings

This can be a good guide and is something to consider. It’s also a great way to avoid spending too much on one item. Plus, the 20% saving guideline is a good one to follow.

But, if you don’t earn much this may not work for you because most of your money will be spent on essential items including food, transport, and housing costs.

Your budget is your personal financial management tool - it must reflect your values and match your income and expenses. When you’ve reviewed and rated your budget, set another review date in a few months’ time. Good luck and happy saving!

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