Have you ever had too much month and the end of your money? Have you ever logged onto internet banking or enquired at an ATM just to see your balance? As a student you are probably always well aware of your bottom line, which already puts you in a good position to budget effectively. You’ll find that many wealthy people have clear sight of their financial picture at any given time, so they think the same – they just happen to have more money.
Budgeting is about managing money in and money out. As a point of departure you need to draw up a list of monthly or regular expenses. Ordinarily one would have a mix of fixed (the same every month) and variable (different every month) expenses but a student is more likely to have a greater list of variable expenses, which has its advantages, like the flexibility to decrease spend if required. Examples of fixed expenses would be rent and car payments, and variable would be food, electricity and cell phone. Understand how much you require to live – this we’ll call the money you need.
Next, write down your income, whether regular or not, but take an average and build in a buffer in case there is a risk of your not earning money at any time. Are your expenses covered by your income? If not, you have to carefully evaluate your spend and make adjustments where necessary. Consider areas where you may be spending more than you necessarily need to and see where you can cut down. This solution may be interim just to allow you to regain control of your spend.
If you have surplus income at the end of the month, my first piece of advice would be to save some of it. In fact that’s the best advice you will ever receive, from anyone. If you’re in a position to commit just a portion of your surplus income to a savings plan, be it a bank account, unit trusts or an exchange traded fund, that would benefit you enormously over the next number of years, so try to set that up as an automatic payment or debit order and forget about it.
At this point you can now consider your wants, as opposed to your needs. I’m referring to entertainment, holidays, clothing and gadgets. Wants are usually higher ticket items, which means that they are more expensive. They are aspirational luxuries that you don’t require to get by but would love to own and associate with. You need a cell phone but you want an iPhone, you need food but you want a fillet steak. How do you budget for your wants?
In the short-term it’s easy: if there is anything left over, it’s yours to spend if that’s what you want. Thinking further ahead, or possibly considering that larger-value item, you have to have a plan exactly like when you were a kid, earning pocket money and having to save up for whatever it was that you wanted.
Today we have fairly easy access to credit and short-term loans, an attractive offer which those with needs and wants often find difficult to ignore. It’s easy enough to attain a credit card and most household furniture and appliances can be bought on credit. They’re attractive offers, at face value, but what those that are tempted don’t realise is that they are paying far than is displayed on the price tag because of the interest that is charged. Bearing in mind that the banks’ prime lending rate is 9%, you will pay 18 to 25% on a credit card and up to 40% on a short-term loan. What this means is that if you purchase a R5,000 TV on your credit card using your 12-month budget facility you will ultimately have paid up to R6,403. Yet if you had held off on that purchase for just a few more months, you could have saved up and bought the item for cash, saving almost R1,500. Do not be tempted to take on debt and increase your monthly expenses so that you can afford something you could buy for cash if you hold out for a short amount of time. The only purchases that you should ever consider taking a loan for are your bond, car and studying – all necessities for some people – but even then cash is king and deposits are royalty.
Your needs – regular and variable – are usually about survival but they are attached to lifestyle which can be tweaked either way to accommodate affordability. Wants are not necessary but important to keep you motivated and we all deserve to spoil ourselves at times. Turn your wants into goals and attach a timeline to each one of them. Strategise as to how and when you will achieve these goals and then set some more, because goals are inspiring and their accomplishment is satisfying, urging you to work harder and achieve more, and this thinking filters through to other aspects of your life making you a winner. Imagine that: effective budgeting can make you successful! That’s because it’s a personal money management skill that can be applied anywhere.