There are many reasons people struggle with saving money. Many factors that we are sometimes are unaware of. In this article we will discuss some of these reasons. 11 reasons you are struggling to save money 1.Cost of living It would be an injustice to talk about saving money without acknowledging the cost of living. The inflation rate keeps rising which means prices are hiking while our income remains the same. High costs of living, such as housing, healthcare, and education, leave little room for saving after meeting essential needs. 2. You don't Budget (or stick to it) A budget is to your finances what water is to your body. You might survive a day or two without it but in a long term you will feel the effects. Without a clear budget, it's challenging to track income, expenses, and savings. Overspending becomes common, making it difficult to save 3. You live beyond your means Spending more than you earn will leave you with nothing to save. Spending more than what you ear
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Saving money is hard. Even harder when you do not know how to. Budgeting is often made out to be a gruesome process that seeks to make you unhappy but that is not the case. In this article, I have covered 4 methods to help you manage your money.
But firstly, what is a budget?
A budget is, as defined by the Oxford Dictionary, the money that is available to a person or an organization and a plan of how it will be spent over a period of time. It is basically how you’ll spend your money.
There are a lot of budgeting tools and apps today that might help you and I have compiled them. Before we get into that, let’s go through the basics.
What you need to know/do before you set up any budget.
1. Calculate your after-tax income
After-tax income is the amount you are left with after-tax deductions. This amount is before your deductions. Most South Africans receive a net salary, which is the amount after all deductions. These deductions are tax, pension fund, UIF, Medical aid, etc. You, therefore, need to add back all the deductions except for tax.
If you have a side hustle you also need to add that income. This is to give you a clear picture of your spending and expenditure.
2. Understand your need, wants, and luxuries
Before you decide on the budgeting tool you’ll use, you need to have a distinction between what you need (cannot live without) and what you want.
You also need to know those things that you do not necessarily need but they do bring joy into your heart. For instance, I do not need books, but I do love reading hard copies so that’s my luxury. A treat.
3. Choose a budgeting system
Choose a budgeting plan that works for you. Tweak it any way that suits your goals. Any budgeting plan should cover your needs, wants, and emergency funds.
Now, onto the budgeting methods that will help you manage your money.
4 Budgeting methods/plans
Elizabeth Warren’s rule of thumb has made waves in debt-free communities. Warren is a Harvard bankruptcy expert and a US Senator from Massachusetts. She was a Time’s magazine Most Influential People in the World 2010. She covers the 50/30/20 rule in the “All your worth: Ultimate Lifetime Money Plan” book she co-authored with her daughter Amelia Warren Tyagi.
The rule covers spending and saving money. It is an easy-to-follow rule that is beginner-friendly. It is recommended by the likes of Dave Ramsey. The rule is:
· Limit your needs to 50% of your after-tax income
This means that your “needs”- such as groceries, housing, utilities, car payments, and medical aid- should take up to 50% of your after-tax income. Refer back to your calculation of after-tax income. Remember the difference between your needs and wants. Your wants are the costs that you can forgo with minor convenience and your needs cannot be forgone.
· Limit your wants to 30% of your after-tax income
Remember the distinction between wants and luxury? This is where it comes in. 30% goes to day-to-day niceties such as the DStv payments, dining out, a beautiful handbag, etc. Most things in your life are wants.
· Lastly, 20% of your after-tax income goes to your savings and debt payment.
20% should go to repaying your accounts and savings. You can break it to 10% on debt repayment and the other 10% on savings such as an emergency fund. Note that mortgage and car installments are classified as a “need”. However, if you decide to pay more than the required amount on the two then that’s debt repayment and should be included in the 20%.
An example of the 50/30/20 rule
If you make R10 000 after-tax monthly income, R5 000 will be spent on paying rent, car installment, groceries, utilities, etc. If you have a car installment of R4 000 and a rent/mortgage of R3 000, you are already living above your needs according to the rule. You should, therefore, evaluate your expenses. The goal is to fit all your necessary expenses into 50% of your income.
R3 000 will be spent on your “wants”. You may put some of this into your “needs” pocket until you are able to adhere to the rule. You can let go of some of the expenses that you are not getting value for money out of. The last R2 000 will be split between paying off your debts and savings. You can automate your savings to avoid overlooking them. You just have to use the R2 000 to plan for your future
b. Kakeibo: A Japanese budgeting method
The Japanese are regarded as experts in personal finance. They manage to save up to 35% of their income by using Kakeibo. The Kakeibo is a manual tool for tracking one’s expenses and income. Kakeibo translates to “household account book” and as the name suggests, the book is used to track every cent a household has and where it goes.
The practice has similar effects to note-taking in a classroom.
c. Stokvel
This is a traditional South African budgeting tool. It varies from one group to the next. For some, each member contributes a certain amount every month and receives groceries in December. Some give a certain amount to a member on their birthday. There’s even one for people who buy each other building materials.
I have personally used a stokvel saving money for the festive season. Each member had to contribute a minimum of R100.00 per month. We all received our contributions in December. For 2020, I managed to save R1 500.00 through this stokvel. It helps with accountability and constant support especially when you are struggling to save.
d. Dave Ramsey’s Envelope System
This is one of the simple and easy-to-follow methods that will combat overspending in an instant. Dave Ramsey’s envelop budgeting system is designed in a way that low-income earners (practical for those with substantial income too) can keep track of their money.
How the envelope system is: you divide your expense categories, e,g groceries, car payment, mortgages, utilities, etc, and then decide on how much you’ll spend on the given category. You will divide your income accordingly and put each amount in a separate envelope. If you spend all the money on a certain envelope, then you stop buying or paying for that item. This will stop you from overspending.
In conclusion
Budgeting should never feel complicated and time-consuming. It is also a personal thing and what works for one person might not work for the other. However, it is absolutely necessary. If we are to be debt-free, we need to be conscious of how we spend our money.