The dual pressures of rising interest rates and increasing inflation are adding to already stressed consumers’ financial headaches and while there is no miracle cure, something as simple as a household budget may ease the pain.
Even in wealthy economies such as the United States, studies suggest that less than half of households have a budget. While there is no recent verifiable research for South African indicators such as financial stress, the levels of concern about money suggest that the figure here is much lower.
“Reasons people don’t budget may be that they’re in denial and are afraid to look too closely at the state of their finances. They might think it’s too complicated or difficult to draw up a budget, or because for some people budgeting, much like dieting, has negative connotations” says Yaasin Nordien, COO of DirectAxis Loans.
“Rather than thinking about a household budget as a difficult, daunting, boring or constraining exercise, consider it as a tool to enhance your future financial security.”
Yaasin says that setting a budget and sticking to it puts you in control of your money, rather than the other way around, and doing so will help to relieve financial stress.
The other benefits of budgeting include:
- It helps you prioritise and focus on setting and reaching future financial goals rather than just living from salary to salary
- It discourages you from spending money you don’t have
- It encourages you to track income and expenses, to identify and stop unnecessary spending and save money
- It allows you to manage debt repayments, avoid bad debts and maintain or improve your credit score (for more information on the benefits of a good credit score visit: www.directaxis.co.za/make-a-plan/why-your-credit-score-is-important-and-what-to-do-about-it )
- It helps you spot potential problems and stop them from escalating
Drawing up a budget will take a bit of time but isn’t difficult. You can use a spreadsheet, one of the many online budgeting tools that are available or you can use a simple piece of paper, depending on which you prefer.
On the left side list all your income. As well as what you get paid, also include any earnings from rentals or side hustles. On the right, use your bank statement to list all your expenses. This will immediately show where you might be able to cut or reduce spending.
It will also enable you to put parameters in place, such as determining monthly spending limits and how much you may be able to save each month. If you are able to save some money towards achieving your financial goals, include it in your budget as a fixed expense.
The same way a guard dog warns you about danger before you see it, keeping a close eye on your budget will show you where there might be risks. If things start to look a little tight you can do something about it before it becomes a problem.
Yaasin says although your first budget probably won’t be perfect, revisit it to see how you are progressing and refine it as you go.
“It’s amazing how this simple exercise, which probably won’t take more than an hour, can be so empowering, insightful and help you reduce some of the stress of worrying whether your money’s going to last for the month.”
BUSINESS REPORT