ARE you one of those people who asked the question, “Where did my money go in 2011?” or “What did I work for in 2011?”
If you could not find a logical answer to these two questions, then my call to action to you this year is to steel yourself for better financial control in 2012.
In my previous articles, I dwelt a bit on some mental heuristics as the genesis of any physical action is always in the mind. If the desire is there coupled to the will to act then we get movement in this sphere of life.
When I discuss this issue with various brethren many times, they try to convince themselves more than the rest of us, that money is not important. If you are living in the Diaspora, you probably have crossed a few borders to find it. Every working day you spend an hour preparing to go and find it.
In some cases, like here in South Africa, you probably spend one and half hours going and a similar amount coming back from work. You labour and toil for eight hours in front of someone you often refer to as a despicable boss for whom you have to put on a plastic smile and say a very good morning on a daily basis. With half of your day gone in its pursuit, you then try to convince the rest of us that it is not important?
I generally discern what is important to a person not from what they say but from what they spend their time and effort on.
To know what is happening to your money you need to draw up a monthly budget to keep your financial house in order.
In its simplest form, all you need to do to have a budget is to take a blank piece of paper and draw a line through it. On the left, list all your expected monthly expenses including money you spend on entertainment and hobbies. It is important to be honest about your spending habits to come up with a realistic budget.
On the right, list whatever you make in a month including your net income as reflected on your payslip if you receive some, and any money you receive from investments and other forms of residual income.
Subtract what is on the left (expenses) from what is on the right (income). If you are in positive territory, you are off to a good start but what is really important is the size of that positive gap. It should be enough to fund your proposed outstanding extra budget financial goals.
I generally propose 15% as sufficient gap for purposeful living. Ensure that you have accurately identified all your expenses. Once you accurately accounted for all your goals, the left and right side of the column should balance.
If your budget turns out to be negative, then you have to look at areas you can cut. When your income does not cover your costs, then some of your spending is probably on luxuries if when you consider them to be real need. Remember luxury is not an absolute term but a relative team which depends on your current station in life. You should always be careful of luxuries which show up dressed as necessities.
Once you have created the budget, the greater part of your work is to put your budget to test by trying to live within it.
I discourage putting a solid wall between your supposed fixed expenses and variable expenses. When you fix something, it means you have put a mental block so that you cannot even go there. Most people would put rent, electricity, water transport and school fees in the fixed category but is it really?
You can vary your rent by changing where you live, you can vary your transport costs by moving closer to your work or joining a lift club where you share the costs. Judicious management of your water usage can alter your monthly bill and by just switching off your geyser during the day when you are all away from home you can cut more than 30% of your electricity bill.
Since a lot more people are more comfortable to temper with the so-called variable expenses, let us spend a bit more effort here. The bible talks about watching out for the little foxes that destroy the vines. If you cannot track money you take from the ATM, or you have this habit of going to the ATM more than once a week, then you may have a problem. It just tells you that you do not have full understanding of your spending habits and the bank is quite happy to get extra fees from your account for the numerous small chunk withdrawals.
I live in South Africa and top grade beef ranges from R38 to R85 a kilogramme. If you are persistently paying R85 while others are paying R38, you may need to examine your purchasing habits. It is the same with chicken, which ranges from R18 to R45 a kilogramme. Since you have the bigger freezer does it not make sense to buy your full month supplies once at the correct outlet and for the correct price?
If you look closer, you may find other little foxes like the canned drink you pay R10 for when it sells for R6.50 in the supermarket across the road; or the bread you daily buy for R11.95 when others are buying it for R6.95.
You should not be afraid to change your budget and your spending plan particularly if your circumstances change. Budgeting allows you to maintain firm control on your money instead of being a slave to your money. If you are in a family setting, transparent budgeting can galvanise the whole family to focus and strive towards common goals.
In business, we are always examining the variance in our budget and taking corrective action to ensure that it does not continue. It is normal to have a small variance to our personal budget now and again but to have continuous negative variance for 12 months communicates a life out of control.
Tafirenyika L. Makunike is the chairman and founder of Nepachem cc (www.nepachem.co.za), an enterprise development and consulting company. He writes in his personal capacity