In 2019, even before the onset of Covid-19, the South African Savings Institute (SASI) reported that household debt was staggeringly high at almost 72%. This meant that for every rand earned, nearly three-quarters went towards debt, leaving households with very little left for living expenses, and even less for saving.
Fast forward to a pandemic-ravaged environment where a BusinessTech survey revealed earlier this year that 76% of respondents indicated that they save less than 15% of their salary, while 35% said they don’t save any money at all.
This isn’t surprising, given a recent report from FNB which stated that middle-income consumers take, on average, only five days to spend up to 80% of their monthly salary.
Sebastian Alexanderson, founder and debt counsellor at National Debt Advisors (NDA), comments: “South Africans are notoriously known for being bad savers. So, in times like these when the economics are against us, it’s even more important that we get back to tried-and-tested money basics that – especially if the usual, unhealthy spending habits – are what prevent people from saving.”
Alexanderson says budgeting is a great way of taking control of your finances. “When you budget, you know exactly where all your money goes, where you can make adjustments to save even small amounts, and also how to effectively save and leave enough money for unexpected expenses and emergencies.”
He also highlights how saving money is a very important part of any healthy personal finance management strategy.
Alexanderson breaks down some of the various budgeting methods.
- The 50/30/20 budgeting rule: This strategy operates as an easy guideline for planning your budget by allocating 50% of your net income to needs like rent, groceries, and utilities; 30% to wants such as hobbies, vacations and dining out; and 20% to financial goals (that is, savings and debt payments). The further outlines that the reason this strategy works is because an integral part of succeeding at properly executing your budget is to understand your priorities and budget according to these. Practically, the 50/30/20 budgeting rule works as follows: You take your net income and multiply it by 0.5 and the result will be the amount that you should spend on needs, multiply your net income again by 0.3 to get the amount to be spent on wants, and then finally by 0.2 for financial goals. The next step is to make a list of monthly expenses and tally them according to the category each one falls into and check whether you’re spending the correct amount in accordance with your 50/30/20 rule. Alexanderson says it’s important to remember to track expenses each month, and make changes where needed in order to stick to your spending thresholds going forward.
- The 80/20 rule: Another budgeting method is the 80/20 rule which sets aside 80% of your income to needs, wants, and debts and then 20% is strictly designated for savings.
- The 70/20/10 rule: An alternative to the above rule, which says 70% goes to living expenses, 20% to debt payments, and 10% to savings.
“It is much easier to successfully implement these tactics if you develop them to suit your particular lifestyle. You can do this by assessing your financial situation and identifying where improvements can be made,” says Alexanderson.
He says that by saving money, people can avoid debt, which in turn relieves stress. If you have overwhelming debt, seek help sooner rather than later, and address it while ensuring you keep your compulsive spending at bay.
“While many people understand the importance of budgeting, most have found that figuring out an effective budgeting method and sticking to it is often easier said than done. Nevertheless, budgeting doesn’t need to be complicated, nor should it take hours out of your day. In fact, the best ways to budget are often the simplest.”