But, if you’ve never created a budget before, the idea might feel overwhelming. Don’t worry! This guide will break down the budgeting process into simple steps, using real-life examples, analogies, and tips relevant to South Africans.
What is a Budget?
A budget is simply a plan for how you’re going to spend your money. Think of it like a road map for your finances. Without it, you might end up lost, spending more than you earn, or failing to save for important goals like buying a home or going on holiday. With a budget, you can see exactly where your money is going, which helps you make better financial decisions.
Step 1: Track Your Income
What is Income?
Income is the money you receive, whether it’s from your salary, side hustle, rental income, or any other source. Understanding how much you earn is the first step in creating a budget because it sets the limit on how much you can spend.
Example:
If you work in Cape Town and earn R20,000 a month before taxes, your monthly income is R20,000. If you also have a side hustle bringing in R5,000 a month, your total income would be R25,000 a month.
Step 2: List Your Expenses
Expenses are the things you spend money on, such as rent, food, transportation, and entertainment.
There are two types of expenses:
Fixed Expenses: These are regular payments that don’t change much, like rent, car repayments, or insurance.
Variable Expenses: These can fluctuate from month to month, such as groceries, electricity, entertainment, and dining out.
Example:
Fixed expenses: Rent - R6,000, Car repayment - R2,500, Insurance - R1,200
Variable expenses: Groceries - R3,000, Transport - R1,500, Entertainment - R1,000
Step 3: Set Your Financial Goals
A budget should help you reach your financial goals, whether short-term (buying a new phone) or long-term (saving for retirement or a home). Set clear goals to give your budget direction and purpose.
Example:
If you're living in Johannesburg and want to save R50,000 for a car in the next two years, you need to break that goal down. For instance, saving R2,000 a month will help you reach your target in two years.
Tip:
Don’t set too many goals at once. Focus on one or two big goals and work towards them step by step.
Step 4: Categorize Your Expenses
Categorizing helps you get a clear view of where your money is going. You can use broad categories, or break them down even further depending on your needs.
Simple Budget Categories:
Housing: Rent/mortgage, water and electricity, insurance
Transport: Car payment, fuel, public transport
Food: Groceries, dining out
Savings & Investments: Emergency fund, retirement, stock investments
Entertainment & Leisure: Movies, gym, outings
Example:
If you spend R3,000 a month on groceries, R500 on entertainment, and R2,000 on transport, these amounts should be categorized in your budget. By organizing them, you can see where you might be able to cut back, for example, reducing dining out to save for an emergency fund.
Step 5: Set Limits for Each Category
Once you’ve tracked your income and listed your expenses, it’s time to set spending limits. This is where discipline comes in. If you want to save for the future or avoid debt, you’ll need to spend less than you earn. Setting realistic limits is key.
Example:
Let’s say you have R25,000 in monthly income, and your total expenses add up to R22,000. This leaves you with R3,000. You can then decide to allocate this R3,000 to savings, debt repayment, or an investment.
Tip:
Remember, the goal is to spend less than you earn. If you find that your expenses exceed your income, consider adjusting your lifestyle. This might mean cutting back on eating out, cancelling subscriptions, or finding a more affordable place to live.
Step 6: Monitor and Adjust Your Budget
Once you’ve created a budget, it’s not “set and forget.” It’s important to monitor your spending throughout the month to make sure you’re sticking to your limits. If something unexpected happens - like a medical emergency or a sudden increase in electricity costs - adjust your budget accordingly.
Example:
If you’re living in Durban and your electricity bill unexpectedly jumps from R1,000 to R1,500, you might need to adjust your entertainment budget for that month to make up the difference. Being flexible will keep you on track.
Tip:
Use apps like 22Seven or YNAB (You Need a Budget) to help track your spending automatically, or keep a simple spreadsheet to manually track where your money is going.
Step 7: Save and Invest
A key part of budgeting is making sure you’re saving for your future. Aim to set aside a portion of your income each month into savings or investment accounts. This will help you build wealth over time.
Example:
If you set aside R2,000 a month for your savings, you can use this for an emergency fund or invest it in a tax-free savings account (TFSA) or retirement annuity (RA). Over time, your savings will grow, allowing you to achieve your long-term financial goals.
Tip:
Aim to save at least 10% of your income, but start small if needed and gradually increase your savings as you become more comfortable with your budget.
Step 8: Avoiding Common Budgeting Pitfalls
Many South Africans face challenges when budgeting, such as overspending on impulse purchases or not accounting for irregular expenses. Here are some common mistakes to avoid:
Impulse Buying: Stick to your list when shopping, especially for groceries and household items.
Not Accounting for Occasional Expenses: Include irregular costs like school fees, car maintenance, or annual insurance premiums in your budget.
Tip:
Use the 50/30/20 rule: 50% for needs (rent, groceries), 30% for wants (entertainment, dining out), and 20% for savings and debt repayment.
Stick to Your Budget and Review Regularly
Creating a budget might seem complicated, but once you break it down into smaller steps, it becomes much more manageable. By tracking your income, listing your expenses, setting limits, and saving for your future, you can gain control over your financial life.
Remember, budgeting is a tool to help you reach your financial goals, not a restriction. Keep reviewing and adjusting your budget, and soon you’ll be on your way to achieving financial freedom.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
