While most people know that a budget is necessary, many simply don’t know how to put one together. We’re here to tell you, drawing up a budget isn’t as confusing as you think it is. There’s one simple rule that will help you organise your finances for good: The 50/20/30 rule. 

Basically, 50% of your budget should go towards paying your fixed expenses, 20% towards your savings and investments and, finally, 30% should be reserved for any additional costs that vary from month to month, such as petrol, groceries, entertainment, eating out, etc.
Here’s a practical example:
If you earn R16 000 per month, R8000 should be dedicated to fixed expenses, R3200 to savings and investments (link to https://www.africanbank.co.za/en/home/products/investments/tax-free-investment/), and R4800 to additional, varying expenses.
Break this down even further, adding categories to these three separate portions of the budget, as indicated in the table below:


FIXED EXPENSES
SAVINGS AND INVESTMENTS
ADDITIONAL EXPENDITURE
Rent: R 4 500
Savings Account: R1 500
Groceries: R2 475
Medical Aid: R1 360
Fixed Deposit: R1 700
Petrol: R1 120
Water and Electricity: 
R 1 250

Entertainment: R960 
Car Insurance: R750

Dining Out: R2 335
TOTAL: R 7 860
TOTAL: R3 200
TOTAL: R6 890

Looking at this example of a budget, you will see that everything works out perfectly except the additional expenditure, which is R1 950 over budget. This is the area that needs work – it means cutting back, spending less and deciding on what luxuries you can live without. For example:

  • Limit the number of times you eat out during the week. When you do eat out, choose restaurants with better-value meals.
  • When going shopping, take a certain amount of cash to cover the cost of items you intend to buy.
  • Compare prices on different types of items with other stores before making purchases and take advantage of special offers.
  • Restrain yourself from impulse spending.

The key to financial freedom is being strict about recording all of your cash outlays throughout the month and sticking to the limits that you have set out for yourself. A budget is a lot of trial and error but once you find what works, you will be well on your way to safeguarding a worry-free financial future. 
If you’re looking for more savings advice or would like to speak to a consultant about saving money, be sure to contact us (link to: https://www.africanbank.co.za/en/home/talk-to-us/) today.

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