Most people struggle to stick to a budget. People who want to be in charge of their money know they should budget, however only a few find a budget that is practical and works in real life. Temptations, surprise expenses and an income that is inconsistent, can make even the most motivated people fall off track.
The following steps can help you create a monthly budget that actually works.
Step 1: Calculate your exact Net Income
Creating an effective budget starts with you knowing exactly what you earn. Your net income consists of your total wages or salary after taking out tax and other deductions, such as employee benefits. Your net income is the amount of money that hits your bank account each month on pay day.
Remember to include Other Income as well when calculating net income.This is income earned from :
- Side hustles and
- Any passive income, child support or grants.
Suggestion: If your pay fluctuates (commision earners, freelancers, etc.) , calculate your average net income over the last 3 to 6 months.
Step 2: Track and Categorize Your Spending (Without Any Judgment)
At this point you know much money is coming in. Step 2 is about figuring out where it is going.Knowing which expenses you spend most of your money on, can help you determine where it might be the easiest to save.
Do the following:
- Go through your last 3 to 6 months of bank and credit card statements
- Categorize your spending : utilities, groceries, entertainment, takeaways, subscriptions,school fees, transport etc.
- Group these categories into 2 goups: Fixed expenses and Variable expenses
Fixed expenses are regular monthly spendings such as your rent/bond, school fees and car installments. Variable expenses are monthly expenses that change from month to month.An example would be groceries, fuel and money spent on entertainment.
Your spending habits might shock you – and that is okay. This step is also about awareness . not shame.
Step 3: Choose a Budgeting Method That Works For You
A) Zero-Based Budget
With this budgeting method, every single rand gets a job.You give every rand a purpose. Your Expenses/Spending have to be equal to your Net Income.
Meaning:
Net Income – expenses = 0.
This method is good for people who are detail-oriented.
B) 50/30/20 Rule – Budget
This method works for most people.It is a great starting point for beginners.
With this method you have to put your Fixed Expenses and Variable Expenses into even smaller groups: Needs and Wants.You also Create a group for Savings and debt payments.You then need to divide your net income into these 3 spending groups.
Meaning:
- 50% of your net income goes to your Needs (rent, groceries, transport)
- 30% of your net income goes to your Wants (Netflix, restaurants) and
- 20% of your net income goes to your Savings/Debt
This method can easily be done digitally using Standard Bank‘s ”Budget Manager add-on“.
C) Envelope/Jar Budget Method
This method is for people who struggle to control their expenses.
With this method you need to do the following:
- have an envelope or a jar for each of your spending category: groceries, transport, entertainment, etc.
- Every month after pay day, fill these envelopes/jars with the amount of money you are planning to spend on each of them for that specific month.
- You will be using the money in these jars/envelope for their specific purpose, however , once the envelope/jar is empty, you need to stop spending in that category.
This method can be easily followed physically ( using actual jars/envelopes) or digitally using your banking app. Most South African banks like Discovery bank allow their users to automatically categorize their transactions so they can easily track their income and spending habits.
Step 4: Automation
This step is all about automating all that you can. This means you need to do the follwing:
- Set up Debit orders for fixed expenses (rent, debt payment, etc.)
- Set up Auto-transfers to savings accounts or emergency fund
- Set up App alerts for very low bank/credit card balance warnings
This method can be easily followed using Tools like:
- FinWise
- Vault22 ( Formally known as 22Seven)
- Standard Bank‘s ”Budget Manager add-on“
- Spreadsheets: Since they are free and customizable (Google Sheets or Excel)
Step 5: Plan Ahead for Irregular Expenses Too
Irregular expenses are also known as unpredictable expenses .These are expenses such as License renewals, birthdays and holidays.
To budget for irregular expenses, do the following:
- Create a ”Sinking Fund“. This is when you put aside a small amount of money on a monthly basis to ensure that when these costs come up unexpectedly, they don’t throw you off.
Step 6: Leave A Room For Life
Ensure your budget is not too tight, otherwise it will break.Leave a room for life by creating a fun category , such as “oopsie” or ”fun”.
As your life changes, adjust your spending and review your budget regularly to ensure you are staying on track.
Bonus : Real-Life Example:(Uwing 50/30/20 Rule-Method)
Let’s say your monthly net income is R12 000 per month.
50% of R12 000 is R6000.
30% of R12 000 is R3 600.
20% of R12 000 is R2 400.
Meaning you are going to spend the following amount of money on these groups and categories:
- Needs: R6,000 ( for rent, food, transport)
- Wants: R3,600 (will go to entertainment, takeaways)
- Savings/Debt: R2,400 (will go to emergency/savings fund and loans)
Let’s also say after tracking your real spending for 3-6 months, you realize from the R3 600 that you have budgeted for Wants, you are spending R1,800 per month on takeaways. You can then decide to cut that to R600 and move the extra R1 200 into Savings/Debt. That is R14 400 saved every year – just by you tracking your spending and adjusting one category.
Final Thoughts
A budget is about being in charge of your money and clarity. It is not about punishment. The moment you know where your money is coming from ,and most importantly, going, you take your power back. Start very simple. Take 1 step at a time. Stay consistent. Celebrate your small wins – what you are doing is very powerful.
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