A lot of people don’t have a specific method to budget their monthly income in South Africa. They spend their money as time goes and only budget for big expenses like rent and groceries. This is why the vast majority of South Africans don’t have any investments and very little savings. This is a guide on how to budget your salary in South Africa.
There are a lot of budgeting formulars that you can use, some people; aiming to retire early, save up to 70% of their annual income. However, this is extreme, we are just going to focus on how you can divide your monthly income to make sure that you are living a life that is well within your means.
The general rule is that of your income, 50% should go towards needs, 30% towards wants and 20% towards savings and investments. This is known as the 50/30/20 rule that was popularized by Elizabeth Warren.
Leave 50% for needs
We all have needs; shelter, food clothing etc. 50% of your monthly income should go towards covering all your needs. Shelter often takes the majority of the money allocated for needs. Accommodation is expensive and you should try to spend no more than 30% of your monthly income on accommodation.
This is a rule that most people tend to violate, they spend over 50% of their income on accommodation alone. You can’t be earning R8 000 and renting a R4 000 apartment. Spending 30% of your salary on accommodation will ensure that you have 20% remaining to cover other needs.
Sometimes it happens that 50% of your salary is not enough to cover your needs. This might happen if you earning the minimum wage or anything less than R5 000. In that case we encourage using up to 80% of your money on your needs and 20% on savings and investments. Your number one goal should always be increasing your quality of life and your finances. You won’t be able to get any wealthier if you are not investing or saving any money, you will be stuck in one position.
Leave 30% for wants
We spend a lot of money on things that are not really necessary for our survival. These are things that often make life enjoyable for most of us. These wants are things life night outs, dates, movies, subscriptions and memberships. This is where your Netflix, DSTV and other subscriptions come in.
This includes the big one; a car. A car is not a need, your car instalments and all monthly costs associated with your car should fall under this category. This category includes all your debts. If you earn very little money then you should scratch this and put it towards your needs.
Leave 20% for investments
This is one area that a lot of people neglect, we must strive to increase our income, even by a small margin. Think of it this way, if your income grows, so does the money you allocate to other categories. This is the money you can use to invest or to start a side hustle.
It’s often best to start a side hustle if you are earning a low income, you will see returns much quicker. However, you should put as much as you can towards savings and investments. You can put this money in savings accounts, fixed deposit accounts, or other high interest investments.
Conclusion
Budgeting money is not easy, a lot of people rarely save any money for investments. This is why they don’t progress financially and are always stuck in one place. They put themselves at a high risk, losing their source of income means immediate poverty. This was a guide on how to budget your money. Do you have any thoughts or questions? Comment below.
