Managing Your Money: Budgeting, Debt and Saving in South Africa

The one thing

You cannot control what you do not measure: know where every rand goes, and decide in advance where it will go. Most money trouble does not start with one big mistake. It starts with many small, unplanned decisions: a store card opened for a discount, a payday loan for one month, a few rand here and there that nobody wrote down. A plan made before the month starts, and checked during it, is the most powerful money tool there is. §1.2 explains needs and wants, and §1.6 helps you write a first plan.

Money and Your Life

Money is not only about numbers. When money runs out before the month does, it affects everything:

• Health: worry about money causes poor sleep, headaches, high blood pressure and depression. People skip doctor visits and medicine to save money.
• Family: arguments about money are one of the most common causes of family conflict. Children notice the stress even when nobody talks about it.
• Work: people who are worried about debt find it hard to concentrate, and some take time off to deal with creditors or to borrow more.
• Choices: a person in debt has fewer choices. They cannot take a better job further away, study, or deal with an emergency.

Money skills give back control. They do not depend on how much you earn. People on high salaries can be deep in debt, and people on small, irregular incomes can manage well and save. The difference is usually knowledge and habits, and both can be learned.

Worked Example 1.1 — Nomvula’s month

Ms Nomvula Dlamini, 34, is a supervisor at a clothing store in Pietermaritzburg. She is a single mother of two children, Ayanda (11) and Lwazi (7), and she sends money to her mother in Edendale every month. Nomvula earns more than she did five years ago, but every month she runs short before the 20th. She has three store accounts, a credit card, a personal loan, and a payday loan she took in December to pay for school uniforms. She borrows from the payday lender again each month to pay back the last loan. She has started to dread phone calls from unknown numbers.

The lesson: a good salary does not protect anyone from money trouble. Nomvula’s problem is not her income; it is that her spending and borrowing have never been planned. We follow her through this book as she takes back control.

Needs and Wants

The first money skill is to tell needs from wants. A need is something you must have to live, work and keep your family safe and healthy: a place to live, basic food, water and electricity, transport to work, school costs, basic clothing, medicine and the minimum payments on your debts. A want is something that makes life nicer but that you can live without: takeaways, new clothes when the old ones are still good, the latest phone, satellite TV, eating out, expensive brands, gifts beyond what you can afford. Many things are partly a need and partly a want. You need food, but you do not need takeaways. You need a phone for work and family, but you do not need the newest model on a 36-month contract. You need transport, but you may not need a car if a lift club or taxi gets you there.

• Food. The need: basic groceries for healthy meals. The want: takeaways, ready meals, snacks every day.
• Phone. The need: a working phone and enough data for work and family. The want: a new top model on contract.
• Transport. The need: getting to work and school safely. The want: a new car on finance.
• Clothes. The need: warm, clean clothes and school uniforms. The want: new fashion every season.
• Housing. The need: a safe place to live. The want: a bigger place than you can afford.

Wants are not bad. Life without any treats is hard to keep up, and a budget that leaves no room for small pleasures usually fails. The skill is to choose your wants deliberately, after your needs and your savings are covered, instead of letting them happen by habit.

Worked Example 1.2 — Sorting Nomvula’s spending

Nomvula lists what she spent money on last month and marks each item N (need), W (want) or N/W (partly both):

• rent R4 200 (N); taxi fares R1 300 (N); groceries R2 800 (N/W: she bought ready meals on busy days);
• school costs R600 (N); money to her mother R1 000 (N: her mother has no other income but her pension);
• prepaid electricity R700 (N); airtime and data R450 (N/W);
• takeaways on Fridays R480 (W); a new pair of shoes from a store account R650 (W).

The lesson: most of Nomvula’s spending is on needs. Her problem is the debt payments on top of them, which we look at in Chapters 5 to 7. But the N/W items show where she can save without giving up anything she truly needs.

Money Habits and Attitudes

Everyone has money habits: things we do with money without thinking. Some help us and some hurt us.

Helpful habits

• Writing down what you spend
• Paying bills on time
• Saving something every month, even a little
• Waiting a day before a big purchase
• Comparing prices
• Saying “no” to credit you do not need

Harmful habits

• Not checking your bank balance
• Paying late, then paying penalties
• Spending everything and hoping next month is better
• Buying on impulse, especially on credit
• Shopping where it is easiest, whatever the price
• Opening store accounts at the till for a discount

Our habits come from our attitudes to money, and our attitudes often come from how we grew up. Someone who grew up with very little may spend as soon as money arrives, because it never lasted. Someone who saw a parent lose everything to debt may be afraid of any credit. Neither attitude is wrong, but knowing where yours comes from helps you choose what to keep. Social pressure is a strong force in South Africa. Weddings, funerals, school events, holidays, family expectations and the feeling of needing to look successful all push spending up. Black tax, the money many working South Africans send to support parents, siblings and the wider family, is real and often a matter of love and duty. It belongs in the plan, as a need, at an amount the household can carry (Chapter 3).

Worked Example 1.3 — Sipho’s first salary

Mr Sipho Mokoena, 23, has just started his first job as a stock controller at a logistics company in Johannesburg. He grew up in Mahikeng, where his mother raised four children on a domestic worker’s wage. When his first salary arrives, he feels he has to celebrate, buy clothes he has wanted for years, and send money home. Within ten days, most of it has gone. A car dealer has already phoned to offer him finance on a new car, and his bank has offered him a credit card.

The lesson: the first salary is the most important time to set good habits. Sipho’s feelings are natural, but without a plan, his money will be gone and new debt will follow. We follow him as he learns to plan.