I have often heard students say: “I have a lot of month left over at the end of my money.” The reason for this is usually bad planning. In Potchefstroom it could mean that you probably paid a visit to Bourbon Street six times in the first two weeks of the month, and this resulted in you parking at the hostel during the last two weeks and could only buy an Iron Brew at the hostel’s tuck-shop.
Nevertheless, it there are holes in your budget, it means one of two things: There is a problem with your income, or there is a problem with your expenses. The big difference between the two is that your income cannot easily start a snowball effect that can get you out of trouble. In contrast, expenses, mainly due to interest, can get out of hand, and the snowball rolls completely to the wrong side. What may happen on the income side is that you are unemployed, and therefore not earning any income. Then it doesn’t matter how much control you have over your expenses, the budget won’t balance.
The most important starting point is to compile a budget. My experience at Solidarity Financial Services is that very few of our clients compile a budget whatsoever. It is impossible to apply control over your finances if you don’t know how much money you spend, and on what. With modern technology it is easy to compose a simple Excel worksheet and enter every expenditure, and then compare it to your income. Experience has taught me that the greatest culprits are cash withdrawals and expenditures, for which there is no proof as to where the money was applied.
A budget should be an honest document. Should your budget in the end not correspond with what is reflected in your bank statements, it means you weren’t honest enough.
The most important advice that I can give, is to get rid of interest in your life. Start with the expensive interest – credit cards, clothing accounts, personal loans etc. To live on credit and spend interest on something you cannot show, is the greatest reason why South Africa is currently maintaining a negative savings rate.
Interest on a house loan is an exception, as at least you are paying interest on an asset which should in time increase.
C.J. Langenhoven said: “He who pays in cash is master of his pocket.”
Without a budget you will find that the bank’s credit card division, Edgars, Foschini, and many others, are the masters of your pocket.
Smit is CEO of Solidarity Financial Services