MONEY CLINIC | How can I budget better?

With many consumers feeling the pinch, it's a good idea to have a handle on your budget. But what if you have no idea where to start, or how to allocate your funds? 

• Get the biggest business stories emailed to you every weekday, or go to the Fin24 front page.

With the rise in inflation, the recent interest rate hike and the fuel price hikes in recent months, many South Africans face financial pressure and are struggling to make ends meet. In times like these, when the economics are against us, it's important that we get back to tried-and-tested money basics, says Sebastian Alexanderson, founder and debt counsellor at National Debt Advisors.

According to Alexanderson, budgeting is how you can take back some control of your finances. "When you budget, you know exactly where all your money goes, where you can make adjustments to save even small amounts, and also how to effectively save and leave enough money for unexpected expenses and emergencies."

He adds: "While many people understand the importance of budgeting, many find that figuring out an effective budgeting method and sticking to it is often easier said than done. Nevertheless, budgeting doesn’t need to be complicated."  

Alexanderson breaks down three budgeting methods: 

• The 50/30/20 budgeting rule: This strategy operates as an easy guideline for planning your budget by allocating 50% of your net income to needs like rent, groceries, and utilities; 30% to wants such as hobbies, vacations and dining out; and 20% to financial goals (that is, savings and debt payments). The reason this strategy works is that an integral part of succeeding at properly executing your budget is to understand your priorities and budget according to these.

Practically, the 50/30/20 budgeting rule works as follows: You take your net income and multiply it by 0.5 and the result will be the amount that you should spend on needs. So, if your net income is R20 000, you would have R10 000 to spend on needs. 

Multiply your net income again by 0.3 to get the amount to be spent on wants, and then finally by 0.2 for financial goals. So, using the same formula, if your net income is R20 000, you would have R6 000 to spend on wants, and R4 000 to spend on financial goals. 

The next step is to make a list of monthly expenses and tally them according to the category each one falls into and check whether you're spending the correct amount in accordance with your 50/30/20 rule.

So, again using the above example, you would have to spend no more than R10 000 on, say, your rent and groceries; while things like entertainment would come out of the R6 000 budget, and anything you're saving for would come out of your R4 000 budget. 

Alexanderson says it's important to remember to track expenses each month, and make changes where needed in order to stick to your spending thresholds going forward.

* The 70/20/10 rule: An alternative to the above rule, which says 70% goes to living expenses, 20% to debt payments, and 10% to savings.

It is much easier to successfully implement these tactics if you develop them to suit your particular lifestyle. You can do this by assessing your financial situation and identifying where improvements can be made, says Alexanderson.

"If you have overwhelming debt, seek help sooner rather than later, and address it while ensuring you keep your compulsive spending at bay."

Questions may be edited for brevity and clarity.