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How to build a budget that works

Many people have tried a budget and given up within weeks. Budgets usually fail for the same few reasons, and each one can be fixed. Here is how to build a budget on a South African income that you can keep.

Why budgets fail

• It was a guess. The budget was written without tracking what you really spend, so the numbers were wrong from the start.
• It was too strict. No money was left for anything enjoyable.
• It forgot things. Yearly costs, gifts and bank fees were left out, and one surprise wrecked the plan.
• It was never checked. Nobody compared what happened with the plan.
• Only one person kept it. A partner or family member kept spending as before.

A budget that works is based on real numbers, realistic, complete, checked often, and agreed by everyone who spends.

Choose a method

There is no single right way. Choose one that suits you, or combine them.

A percentage split. Divide your take-home pay into needs, goals and wants. A widely used split is 50% needs, 20% goals and 30% wants. For many South African households, needs take far more than half, so adapt it: for example 70% needs, 20% goals and 10% wants. What matters is that your goals get a fixed share every month.

Zero-based budgeting. Give every rand a job. List your income, then list every amount you will spend, save or repay, until the total equals your income exactly.

The envelope method. Put the money for groceries, transport, electricity and entertainment into separate envelopes. When an envelope is empty, spending on that thing stops. Many bank accounts now offer "pockets" that work the same way without cash.

Build it step by step

1. Start from the take-home income you are sure of.
2. List your needs from a month of tracked spending: rent, food, transport, school, electricity, family support, insurance and minimum debt payments.
3. Add yearly costs as monthly amounts. Divide each one by twelve.
4. Pay your goals early in the month: a fixed amount to an emergency fund, savings or extra debt repayment.
5. Plan your wants: a fixed, honest amount for treats and entertainment.
6. Check the total. Income minus plan should be zero. If the plan is bigger than your income, cut the wants first.
7. Write it down and keep it where you will see it.

If your income changes every month

Plan on your lowest month. Build a buffer of one month's basic budget, pay yourself a regular "salary" from it, and send anything extra to your goals once the buffer is full.

Keep it going

• Share the budget with everyone who spends.
• Plan family support at an amount you can carry every month.
• Move your debit orders to just after pay day.
• Check your balance every week, and review the budget every month.
• Never borrow to cover overspending.

If your debt payments are bigger than any budget can carry, a budget alone will not fix it. That needs a debt plan.

This guide is based on Chapter 3 of Managing Your Money, which includes worked budgets and a blank template.