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How to Create a Personal Budget in Just Five Steps

delighted african woman ho;ding a bright pink piggy bank with a dollar stuffed inside

A personal budget helps you better understand your spending habits, so you can better control your cash and channel it towards achieving your financial goals as a hardworking South African.

A well-laid-out budget can also boost your confidence and allow you to comfortably spend your money on that new pair of shoes you’ve always wanted. A budget makes all of this possible since you know exactly how much you can spare. 

Don’t have one in place yet? Read on for tips on how to make a budget.


What is a Budget? 

Popularly known as a home budget, a personal budget is a plan for the coordination of personal income towards expenses and savings. In other words, it’s a plan to spend your money, allowing you to track the amount coming in and out of your South African household over a specified period. Creating one accrues you the following perks:

  • Supports building your net worth
  • Allows easier goal setting and implementation
  • It helps you weed out bad spending habits and organize your spending 
  • Enables you to create an emergency fund for unexpected costs
  • It makes discussing financial matters easier
  • Allows you to clear your debts more efficiently



How to Draw Up a Budget: Five Essential Steps 

Whether you’re budgeting to create room for debt repayments in your income, or simply want to improve your spending habits, check out how to draw up a budget in five steps below:


1. Work Out Your Net Income 

You cannot plan how you’ll spend your future personal income if you don’t know how much you earn. To create an efficient monthly budget, calculate your net income or take-home-pay first. If the amount varies, create a rough monthly budget. 

Besides your take-home-pay, establish all your sources of income, be it from your side hustle, investments, sale of personal items, child support, to government relief. Add this up as your total monthly income.

Tip: If you’re self-employed or you receive irregular income, use the salary from your lowest-earning month, as the baseline income. 


2. Calculate Fixed Expenses 

With your income in hard figures, the next step on how to budget is to calculate fixed expenses.

As the name implies, fixed expenses remain the same from month to month and commonly include house rent or mortgage, and monthly phone and internet bills.

If you’re servicing a loan and pay standard minimums monthly, add it to fixed expenses as well. Once the list is complete, add these up, and subtract the total from your net income to determine how much you usually have left over for variable expenses and saving.

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3. Calculate Variable Expenses 

Next, list all expenses that change from month to month such as shopping, gasoline, and entertainment.

Since these expenses vary, review your receipts, credit card and bank statements and then list every item you spent cash on for the last three months that wasn’t a fixed expense.

Work out an average to determine roughly how much you spend on variable expenses. 


4. Deduct Total Expenses from Your Monthly Net Income

With your fixed and variable expenses clearly worked out, add them up, and deduct the resulting figure from your net income.

If you end up with a surplus, you’re one step towards the right direction since it means you can divide the surplus towards an emergency fund, or your dream vacation.

Suppose you have little or nothing left after deducting expenses. In that case, you might be overspending, and you need to evaluate and make adjustments accordingly to secure your financial future.


5. Adjust Expenditure Accordingly 

If expenses outweighed your income above, sort them into categories, and sub-categories to determine exactly how much you spend on particular things.

For instance, create a food category, break it up into sub-categories such as groceries and restaurants. From the list, identify the unnecessary expenses and cut them out.

If you had a surplus after deducting expenses from net income, re-evaluate your variable expenses again and remove what you think is unnecessary. While at it, allocate the surplus to areas of your budget that may do with extra money.

For instance, if you’re creating a budget plan to reduce your debt, use the extra money to increase your minimums so the debt is paid off faster. 

Also, set a saving target, and create a plan on how you’ll achieve it. Ensure you review your budget plan occasionally to see if you’re still on track.



Creating a Personal Budget Plan in South Africa

A personal budget is the secret to achieving your financial goals. It lets you track your spending habits, save for both expected and unexpected expenses and work out a sound savings and investment plan.

A personal budget even serves as an early warning for potential problems, motivating you to take the necessary steps to secure your financial future before it’s too late. Hopefully our five-step guide on how to create a personal budget helps you create an efficient monthly budget plan.

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Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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