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You probably think you have so little, there’s no point in thinking about “managing” it. Only rich people do that, right? Wrong. Smart money principles will help you to stretch your money now, and if you manage it well, you will enter the working world without unmanageable debt, ready for success in the future.
Before we get to the nitty gritty of a budget, just a comment about money and emotions. Understanding the principles of money isn’t difficult, but sticking to what you know you should do can be VERY difficult – because of our emotions. When you’re stressed and tired you may want to order an expensive takeaway. Wanting to fit in with friends can lead you to buy something you don’t really need and can’t really afford. Your family’s needs can be emotionally overwhelming, making you hand over money you absolutely need for your own expenses. Be aware of those emotions. Recognise them and deal with them rationally. Do not let your heart rule your head when it comes to money.
Now, to budgeting.
As we said before, you simply cannot handle money without a budget. If you just start spending on the first day of the month, your money will be finished long before the last day of the month. Your budget is your instrument of control. It is the first tool in your toolbox for avoiding short-term disaster and building long-term success. If you have 20 minutes, you may want to watch Jennifer Nxumalo’s video. She’s aiming at people who are earning already, but the principles are the same and she’s great at explaining it simply. Like the TikTok video that I refer to below, she says that a budget “tells your money where to go.” Won’t it be nice to do that?
When I started working, a long long time ago, most transactions were done in cash. Every month, on receiving my salary in the bank, I would draw it all, and then divide it up in a series of envelopes marked “rent”, “groceries”, “petrol”, “church”, “clothes”, etcetera. That method still works. The #CashStuffing tag on TikTok leads to amazing videos, like this one.
You will probably not use cash. It’s a pain, and it could be dangerous. Use the same idea, splitting up your money into separate units, but do it on paper or on an excel spread sheet.
Start with how much money you have every month. You may have a bursary, do tutoring, or even have a side hustle selling snacks, braiding/cutting hair or network marketing. Add it all up and write it down.
Now divide that amount into all the categories of things you spend money on: rent, clothing, books, food, transport, family support, airtime, emergency savings, etcetera. Some of these happen every month, like rent, groceries and phone costs. Those are regular expenses. Some happen now and then, like clothes and books. Those are irregular expenses. Build in an amount for these irregular expenses every month, and only spend it when you have enough in that column. If you put away R100 for clothes every month, for example, you can buy winter shoes when you have enough, without spending that month’s grocery money on the shoes.
The third step is keeping track of it. This is a bit of a pain, but it will make your life very, very much easier. It means that you have to write down everything you spend, in the relevant column. If you buy takeaways for most meals in the first week, your food column will soon run empty – and you’ll see it, so next month you’ll know not to do it again.
In practice, it looks like this: (Everything is noted in the “bank” column AND in the relevant expense column – the money comes into/goes out of the bank AND into/out of that item on the budget.)
Next month you carry the amounts available over onto the next sheet, adding/subtracting from your budgeted amount at the top of your page. Hopefully “emergency” will soon have enough money for a ticket home if Granny gets ill, “toiletries” will have enough for that special face cream you’ve been eyeing, and “food” will break even every month.
Check your budget after three months. Is it realistic? If you overspend on one item every month, ask yourself if you can live on less – can you bring down your food costs, for example? If not, you have to adjust the budget. Something else has to get less. Otherwise, you have to find an alternative source of income, as mentioned above. (You may have more sympathy for our Minister of Finance after this exercise!)
The temptation is of course to buy on account, going into debt. We’ll talk about good and bad debt next week. In the meantime: Happy budgeting!
The GRAD team
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