“Everyone teaches you how to save money, but no one really teaches you how to spend it” - Ramit Sethi
This blog post will help you learn:
- How to spend your salary wisely.
- Give you ideas of the financial goals you should be working towards.
- Give you access to a FREE budget template.
- Provide you with insight into what you can do if you find that you have too much debt for budgeting rules.
Step one
When it comes to learning how to manage your money, a good starting point would be to track your spending. By doing this, you will have a more accurate picture of where your money is actually going.
Print three of your most recent checking account bank statements and then list all your expenses.
Step two
The second step for managing your money well is to think of what financial goals you have. For these financial goals, consider what your short term and long term goals are.
Stuck on what your financial goals should be? These are a few saving goals examples:
- Emergency fund savings
- Retirement savings
During this phase of your financial planning, it's also important to note the difference between saving and investing. Many people want to know which one is better for you, when in reality, you need to do both.
“Saving protects your wealth. Investing grows your wealth” - Jaspreet Singh
If you're just starting out and you're new to managing your finances well, start with saving towards an emergency fund. This is an essential part of protecting your wealth from future emergencies that may cost more money than what you have on-hand.
Read: Emergency fund: Why and how you should start
Step three
The third thing you want to do is consider your money dial.
According to Ramit Sethi, a good idea when planning your budget is figuring out what your money dial is. A money dial is something that brings you joy and that you love spending money on. He goes on to say, spend more on what you love and be relentless about cutting back on what you don’t.
Step four
Create a realistic monthly budget. Here we will consider two well-known budget rules when it comes to spending your salary.
How to spend your salary in percentage
There is different advice around when it comes to what the 'correct' percentage breakdown you should be using when determining how to spend your salary. In this blog post, we’ll briefly unpack two: 70/20/10 and 50/30/20 rules.
What is the 70/20/10 rule for money?
70% of your salary: essential living expenses (rent/bond, groceries, transport, etc)
20% of your salary: financing your debt & towards your savings
10% of your salary: your lifestyle (money-dial) expenses
70/20/10 example
Earn R40 000 per month after deductions? This is an example of how you can follow the 70/20/10 rule for spending.
R28 000 (70%) should go towards your essential living expenses.
R8000 (20%) should go towards financing your debt & towards your savings.
R4000 (10%) should go towards any lifestyle expenses or wants you may have.
What is the 50/30/20 Rule ?
With the 50/30/20 rule:
- 50% of your salary: essential living expenses like your bond or rent, groceries and transportation
- 30% of your salary: lifestyle and entertainment expenses
- 20% of your salary: debt and savings (credit cards and loans, as well as any savings products you have).
50/30/20 rule example
In the following example, we have chosen instead to allocate 30% towards financing debt and your savings. The reason for this is that, given the financial outlook in South Africa, this is a more ‘reasonable’ look at how you can spend your salary.
If your take-home salary is R26 000 per month, this is how you should be spending it according to the 50/30/20 rule:
R13 000 (50%): essential living expenses
R7800 (30%): towards debt & savings
R5200 (20%): towards lifestyle and entertainment expenses
Both of these salary percentage breakdowns are only meant to serve as a guide. If you find for example, that your essential living expenses are way more than 50 or even 70%, you may be over-indebted.
Another sign that you could be over-indebted is if more than 50% of your salary is going towards paying off your debt.
Read: How do you know if you're over-indebted?
If you find yourself in this position, you are not alone and there is help.
According to FNB, middle-income earners spend 80% of their salary within five days of getting paid.
And, according to the Financial Sector Outlook Study for 2022, more than 50% of credit-active consumers in South Africa are over-indebted.
Interest rates have increased, the price of electricity has increased, the price of food has increased, is it any wonder that South Africans are finding themselves in a position of over-indebtedness?
How do you allocate only 50%, or even 70% of your salary, towards your living expenses when the cost of living is so high and you can barely make ends meet? How can you allocate money towards lifestyle expenses when your lifestyle is spent paying bills and trying to figure out how you will make it to the end of the month?
The simple answer is, you probably can't. If this is you, we can help you.
What can you do to get out of debt in South Africa?
Go under debt review at Meerkat.
Debt review, also known as debt counselling, is a debt relief process that is intended to help South Africans who are over-indebted and unable to pay all their monthly debt obligations.
How does debt review work in South Africa?
One of our expert Debt Counsellors will first determine if you are over-indebted. Once they have, they will then work out a repayment plan for you that prioritises your daily living expenses too. This can result in you paying up to 50% less on your monthly debt instalment each month.
Read: How a young family went from over-indebted to debt free thanks to Meerkat
