Four red flags that you're living beyond your means - and how to get your budget back on track

Four red flags that you’re living beyond your means – and how to get your budget back on track

Among the biggest trends right now are YOLO (you only live once) and FOMO (fear of missing out), largely in response to relief after nearly three years under global lockdown conditions.

There has definitely been a mental shift towards travel and the experiences people promised themselves when they were on lockdown, says Thopi Mhloli of Standard Bank, owner of Product: Savings & Investments.

“It makes perfect sense that people want to live their best lives now, but with these decisions, you also need to take some responsibility for yourself in the future,” she cautions.

Red Flag 1 – Unable to calculate how to spend your money

One of the clearest signs of overspending, Mhloli says, is getting to the bottom of your bank balance and discovering that you’re unable to account for how your money is being spent.

“One way to tackle this is to use a budgeting app, such as Standard Bank’s Budget Manager, which can help you track your spending and offer helpful tips for cutting expenses so you can save more,” she says.

This brings the importance of budgeting. They say budgeting means telling your money where it’s going instead of wondering where it went.

“It sounds so cliché, but I’ve used the 50/30/20 budgeting rule my entire life and tell everyone around me to do the same. Essentially, you spend 50% of your paycheck on your needs, including rent, car payments, fuel, school fees, and electricity; 30% goes into your savings and debts; and 20% goes toward wants or extras like streaming services or entertainment,” she says.

Rita Cole, Head of Individual Consulting Strategy at Alexforbes, advises that you plan your annual budget in December of each year.

“Review your budget and cash flow, taking into account incidental expenses like car registration fees, haircuts, and birthday presents. Anticipate more expensive months and include holiday expenses in your budget. Proper planning and budgeting will help you stay on track next year and avoid financial pitfalls.”

red flag 2 – No emergency fund

emergency fund Acts as a financial safety net for unplanned costs. Prioritizing your emergency fund can help you better prepare for financial surprises and avoid slipping deeper into debt.

The recently released Old Mutual Savings & Investment Monitor report found that 53% of South Africans did not have enough money for unplanned expenses, while 62% would have little savings if they had to suddenly lose their income.

Remember that your savings for emergencies should be on hand because you’ll likely need that money quickly, and you don’t want to pay unnecessary penalties. The best means of saving are bank deposit accounts or money market funds.

red flag 3 Stagnant savings account

Mhloli suggests that you redirect some of your non-essential spending toward your savings to keep the ball (and compound interest) in check.

Find out if your bank offers a ‘bank of change’ option if you don’t know where to start. Or start with a savings challenge, like R10 a week. You’d be amazed at how those rands and cents start adding up.

red flag 4 – Insurance is referred to the category of grudge buying

Finally, insurance is very easy to fall into the grudge buying category, but it provides vital protection against unexpected costs and protects your assets. Santam’s head of market development, Neptal Khoza, points out that nearly 80% of South Africans are more than 50% underinsured when it comes to the true value of their property.

To put this into perspective, Khoza explains that if you insure your home for R800,000 but the actual value is R1.6m, you are 50% less insured.

“While you save premiums, the reality is that if you had to suffer property damage of R500,000, you would only be paid 50%, or R250,000, because you are 50% insured. That means you would need to find another R250,000 from somewhere – something not many of us have around,” he says. DM


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