By Chrystal and Travers Cape

What is a budget, why do you budget and how do you budget? Firstly, a budget is a tool to plan your income and expenses for a specific period, usually the next 12 months. 

A budget is important, because as an individual or a family, you need to plan for your future. This would include planning for:

Retirement, what savings will you require and how much should you invest or save to prepare

Holidays, such as an annual holiday or overseas trip

Buying a new car or a household appliance

Having children

Studying further

Further, a budget allows you to see what you are spending and whether you have a surplus (your income exceeds your expenses) or a deficit (your expenses exceed your income). If your expenses exceed your income, you can then decide where to reduce your expenses, or whether you should consider an additional stream of income (such as an extra job, or side-hustle). 

A budget will also show you whether you are able to survive a financial crisis such as the one we are currently experiencing. The goal is to have three to six months of all your expenses saved away as emergency savings. 

The most important step in budgeting is to start! We have developed 11 steps to help you develop your budget:

Do your budget with your spouse or partner. This will help both of you understand your financial position and will also ensure a commitment and accountability for income and expenditure.

Set savings goals for things such as holidays, a new house, a university education for your children, or anything else that you are saving for. 

Identify months where you will have unusually large expenses for specific items such as birthday gifts, school uniforms, annual subscriptions. 

Start by planning for your necessities. These are the important categories in your budget. These are items such as food, housing, electricity, water and transportation. 

Identify your different streams of income. These would include salaries, bonuses, interest received, dividends received or rental received from properties owned.

Print your last three months of bank statements and identify all of the monthly expenses you incur. This will help you understand exactly how much you spend each month. 

Pay off your debt first, including credit card debt. 

Budget for savings, even if it is only R20 per month. 

Use a spreadsheet or an online budgeting tool to assist with your budgeting process, or write it down on paper. As long as you write it down somewhere. 

Identify where you can pay for items upfront in order to get a discount. An example of this certain subscription fees where if you pay upfront for the year, you get a month free or a percentage discount. If you take this option, remember to still budget for the monthly cost, so you can save up for the following year’s premium. 

Review and update your budget on a monthly basis. Compare your actual spend to your budget and determine where you need to make some potential lifestyle adjustments, or where you can perhaps increase savings. Remember, sometimes these amendments are only temporary. 

As indicated by these simple steps, budgeting does not need to be difficult or complicated. You just need to take the first step and start. We are in the process of writing a book to be released at the end of the year, which will provide a more in depth discussion on the understanding of money and budgeting. 

Travers Cape and Chrystal Cape are both Chartered Accountant’s. Travers has over 15 years experience, and holds an MBA in strategy from the University of Strathclyde in Scotland. Chrystal holds a Masters In Taxation from the University of Pretoria. Currently, Chrystal and Travers both hold senior positions and are responsible for key functions within large multinational companies. They are both passionate about finances, financial markets and the key forces influencing these.