I’m broke all the time… can I still actually budget?

WHEN you are struggling to make ends meet and someone tells you that you need to make a budget, it’s almost as if they are insulting you.

You’re not ‘braffing’ every weekend or spending carelessly on luxuries, so what is writing down your finances going to solve, anyway? And to add insult to injury, if you do download one of those fancy apps and dare to enter your income and expenditure, you’ll probably roll on the floor laughing because no way will that balance out.

But Michelle Sinclair-Doyley, manager, client financial education at JMMB Group, explains that budgeting is especially important for those who are struggling financially, because it helps you to assess your current finances and prepare for the future.

“It’s just looking at your life,” she reassures. “Simple addition, subtraction and multiplication can tell you so much, and that’s all it really is.”

A budget is simply a record of all the money that comes to you, and all the money that leaves you over a period of time. Every expenditure, as well as every income, ought to be recorded on the budget, and it is not a very complex task to get done.

You can do a simple mock-up in Microsoft Excel, but there are also many apps available to help you where you simply input whatever you spend, and it will keep track of your budget for you.

So how do you budget when you can’t even balance your income and expenditure in your head?

1. When you make a budget you will be able to identify the areas that you tend to spend more on, and adjust your spending accordingly

“If your budget does not have any opportunity for you to enjoy any aspect of your life, you are not going to stick to that budget,” Sinclair-Doyley states. “Let’s say for a lady who loves to buy shoes… maybe that is the one area that she is splurging on, and she may have been conserving in every other area of her life. Maybe what she could do is buy a new pair of shoes every two or three months, instead of every month.”

The key is not to take every single thing that you enjoy out of your budget, but you have to determine what your area of splurging is, and how much you’re going to splurge.

2. In addition to your weekly or monthly budget, also make a yearly budget

An annual budget captures all the one-off expenses that you may have. Sometimes it will seem as if you have a surplus at the end of each month, and then all of a sudden it is time for you to pay insurance for the car, or it is time to pay the school fees, and you would not have made sufficient preparation. So make sure that your budget takes into account all these “unexpected” expenses too.

3. Know how to build wealth

The only way you can gain wealth is by increasing your income. The only way for you to become more financially secure, once you cannot reduce your spending anymore, is that you need to be earning more.

4. Identify areas of weakness

So you take home $80,000 after taxes, but rent, bills and food expenses far supercedes that. What do you do? You look for what you can cut back on. Planning meals, for example, before you go to the supermarket can cut your food bill in half. So sit down and plan out what you will serve for dinner for each day of the week, and only buy those ingredients. Also re-assess whether your high rental bill is worth it. Do you have to live in Long Mountain and pay rent in US dollars, or could a two-bedroom in Patrick City suffice? Reassess your means, and live within them.

5. Be wise in your expectations

Planning ahead that you’re putting money away towards some goal is fine, but this must be done with wisdom. Where is your money being saved? A regular savings account won’t get you any returns on your money, but investing in stocks might, and bring you to your dreams faster.

6. Save, from what?

You may laugh at the idea of saving from the pittance that you make, but putting away a small sum each month will add up. Join your company’s thrift club, for example, and have the money taken out before you get your salary in hand. Also, you can see huge savings by just curtailing your spending habits with your credit card. Pay off your balance in full to avoid interest. Don’t make ATM withdrawals from your credit card, and know when your billing cycle is, so you can juggle when your payments will be due.