• Home
  • Budgeting for financial health

Budgeting for financial health

Drawing up a budget can be stressful, but failing to create a budget is likely to be even more so.

The following information is a simple plan to follow with easy budgeting steps. If you’re someone who has never budgeted or someone who wants to go back over the basics to see where your money is going, these steps are perfect for you. If you’re living on a low income and you’re also in debt, it’s always important to create a budget first in order to look at your ability to deal with the debt.

The Benefits of Drawing Up a Budget

  • Helps you create a visual spending picture
  • Eases decision making about spending and saving for the future
  • Encourages cautious spending and disciplined saving
  • If followed, helps you to meet financial goals
  • Helps you feel less financial stress
  • Helps you to be realistic in your expectations
  • Helps you understand the effect of each financial decision on achieving your goals
  • And most importantly, puts YOU in charge of your own finances

Drawing up a budget

The steps to drawing up a budget are listed below. You have already completed the first step, and each of the other steps will be discussed in detail over the following pages.
  1. Review and establish your financial goals.
  2. Look at all your income: Examine your current financial position and estimate the amount of income from different sources.
  3. Write out a budget for 12 months and list all expenses and amounts needed; itemise all your expenses in each category and estimate reasonable amounts.
  4. Make sure your expenses are not more than your income; look at things you can change.
  5. Decide how much you will have left over and how much you can save.
  6. Decide how long it will take you to reach your financial goals. Review and adjust as needed.

General categories of expenses

  • Debt payments
  • Education
  • Entertainment and recreation
  • Food
  • Giving or donating (for example birthdays or charity)
  • Housing
  • Insurance
  • Medical/health care
  • Personal (for example gym, hair care)
  • Savings
  • Special occasions (for example weddings or anniversaries)
  • Transportation
  • Utilities (for example water, electricity and phone costs)
  • Charges
  • Sundry
At this stage you are not making any changes to your expenses, you are simply making a realistic account of all the things on which you spend money every month. For now you will leave the amended column blank, and you will complete this at a later stage in this process. You will now use the table to list all of your expenses (remember to be realistic).

The next types of expense you need to consider are your debt obligations. These are all the credit accounts you are paying off every month, such as a home loan or clothing account. Using the table below, list all of your debt obligations as shown on your credit report and all your statements that you gathered before we started budgeting. Leave the ‘extra payment’ column blank for now.

Look at Your Income

Income is money that you receive on a regular basis in exchange for a product or service that you provide, or from capital that you have invested. Income includes:

  • Salary or wage
  • Bonuses
  • Child support/maintenance/alimony
  • Interest earned on savings accounts
  • Overtime and commission
  • Service tips
  • Rent from property
  • Disability grants or pension

You need to look at your income carefully, and ask yourself the following questions:

  • Where does my money come from?
  • Which of these sources of income are infrequent or irregular? Why?
  • When I get an income in large amounts every once in a while, how do I plan to use it to pay for expenses throughout the year?

If you are married, include both spouses’ income. You are both working together to achieve your goals, and both of you should be accountable and involved in this process. Remember that any income you include must be regular or definite.

So, the first thing we are doing is taking our GROSS income and then calculating our NET income.

Get started by downloading this guideline:


How much debt is too much?

How much debt is too much? This is a difficult question to answer. Some might say that a bond that is greater than three times their annual income is too much, while another might say it is manageable. Only you can know how much debt is too much for you. In general, however, if you have a debt/ income ratio greater than 20%, you are probably feeling the strain (this is non-mortgage debt).

Gross monthly income is R20 000
Monthly debt is R5 000 (credit card payments, loan and car payments)
R5 000 ÷ R20 000 = 0.25
Your debt/income ratio is 25%.

For reference, an annual income of R350 000 gives a monthly income of about R29 170. A debt-to-income ratio of 15% would mean your total non-mortgage debt costs R4 375 or less each month.


Now that you have established a clear and realistic picture of your current financial position, you can start looking at your budget and see where you can cut expenses to help you achieve the personal goals you set for yourself earlier. How much money is coming in? How much money is going out? If your expenses are greater than your income, look at where your expenses must be changed. Perhaps you will need to cancel your DStv or reduce your electricity usage for a while until you are debt-free.

The difference between needs and wants

It is also important to distinguish between NEEDS and WANTS.

You have to learn to switch off that little voice and distinguish between needs and wants, and recognise that we are often tempted to spend money on items that we convince ourselves we need. Remember, just because you can afford to buy something does not mean you should. That is why a budget plays such a vital role in helping you avoid these temptations and stay on track towards achieving your goals.

"Little Voice" checklist
We all have that ‘little voice’ – our subconscious mind that tells us what we should and should not do. It will also try to justify certain decisions we make, never more so than when we are on a diet, or when we go shopping or spend money. Think about when you are in a shop about to make an impulse buy. Which of the following does your little voice tell you?
  • I deserve this
  • It's on sale and won't be here later
  • I earned this
  • It's buy-one-get-one-free, so I should get it and save
  • It's been a hard day/week
  • I'm getting a bonus in a month's time
  • I'll get this now and then not get that later
  • It's only (insert rand amount)

If you are like most people who have not budgeted and there is more money going out than coming in, you have to start seeing what isn’t really needed – expenses that are luxuries. Here is a list of things that you could look at:

  • Cigarettes – one packet a day you smoke is R900 a month
  • Chocolates – one slab a weekend is R60 per month
  • Soft drinks – R9 a day = R270 per month
  • Pie or sandwich bought for lunch – R15 a day is R450 a month
  • Socialising on the weekend – a minimum of R400 for the month

These ‘small’ expenses total a surprising R2 080 every month!

Spending habits you need to change

“We must consult our means rather than our wishes” ― George Washington

Using the list of expenses you created in STEP 2, and the journal you kept where you recorded all your spending for one month, identify any unnecessary expenses. Remember, the more of these unnecessary expenses you can cut, the closer it will take you to achieving your goals.

Deciding which expenses to cut or reduce can be a difficult exercise, but a simple way to get you started is to go through your expenses and classify them and highlight them.


  • Essential Expenses - These are needed to survive and function, and are inflexible, for example rent.
  • Non-Essential Expenses - These are necessary but flexible, and could be reduced, for example food and utilities.
  • Luxury Expenses - These are wants and not necessary and can be cut, for example satellite TV.

Now start by eliminating all luxury expenses and see how much you will now have available for your goals. If the amount is still not enough to help you achieve your goals within a realistic timeframe, then you need to determine where you can reduce your non-essential expenses. For example, can you take out a cheaper cell phone contract? Continue reworking your budget until your income is greater than your expenses and debt, and until you have enough left over to start paying off your debts or start saving.

Rework your debt

Before you can rework your debts in terms of determining which debts you will pay off first and faster according to your budget, you need to prioritise your debts. You need to classify your debts as either ‘primary’ or ‘secondary’ debts. Using the table provided, you will list all of your debt obligations, indicating the total amount outstanding, how much you are in arrears, and any action a credit provider has taken (for example collection calls, a letter of demand or a summons).

Rework your debts now:


Make sure that you maintain your primary debt payments, and before you start saving you should first pay off those debts where legal action has been taken, or those where there are only a few installments left.

Allocate extra funds to your debts and goals

Now that you have prioritised your debts, you can see which debts you need to pay off first, and can allocate extra or surplus money you have available after cutting unnecessary expenses to paying off these debts faster. You should always pay off debts where you are in arrears, or any legal action has been taken, before you allocate extra funds to saving. Once you know how much money you have available for your goals, you can allocate the money in the ‘paying myself’ column.

Take Note

Even though some debts may be a priority and need to be paid off first, that does not mean you can stop making pay- ments on your other debts. If you need to reduce the amounts of your monthly debt repayments, you should contact your credit providers immediately. Explain your current financial position to them, and request that they either reduce the monthly payments to an amount that suits your budget, or grant you a ‘payment holiday’ for a fixed period.

Remember, fluctuating interest rates and inflation will have an influence on your budget in terms of your monthly expenses and your debt repayments. It will also have an effect on the amount of compound interest earned on your savings.

That is why it is important to monitor and review your budget on a regular basis.

Review your budget every three months, and use a spending diary or journal to keep track of your spending, and update amounts if you need to. Adjust your budget if circumstances change.

Check your slips or statements every month to make sure they are correct and that you are still on track.

How to stay within your budget:

  • Start small: Don’t set yourself up for failure.
  • Give yourself small rewards when you reach your goals, for example a nice dinner.
  • Look at your budget weekly to remind yourself on what you can spend money and check that you are on track.
  • Always include unexpected events in your budget. Label it ‘Emergency funds’ – not more than 10% of your net income.
  • Put your savings in an account where you do not have easy access to it.
  • Keep track of what you spend daily and monthly.
  • If you spend more on one item, spend less on something else.
  • Get the family to participate in drawing up and sticking to the budget.
  • Tell friends about your financial diet so that they don’t tempt you to break it.
  • Pay accounts via direct debit; even your savings amount can be debited from your account.
  • When investing money in business, consider what to do if the investment fails.
“A budget tells us what we can’t afford, but it doesn’t keep us from buying it.” ― William Feather

If your situation changes and you are likely to or miss a payment, contact your credit providers immediately. Explain the situation to them and promise to either make it the next month or ask that the payment be spread over a few months. Once you have paid off your primary debts (except for your home or vehicle loan), you can start allocating the extra funds you have available at the end of every month to your savings and towards achieving your future goals.

Take Note

If you are already at minimum reasonable living expenses, it might be time to visit a debt counsellor or speak to your credit provider to see how they can assist you.

Reward yourself with a small treat when you achieve small goals or milestones so that living within a budget does not feel like a chore and you can celebrate your small successes.

Budgeting: FAQ

What is a budget?

A budget is a plan for what you are going to do with your money. This plan details your current financial situation, and helps you keep track of and manage your spending. It gives you an estimate of your income and expenses, including debt obligations, for a specific period. It is a tool of financial planning to help guide your spending and borrowing behaviour, because it shows you how much is left over after deducting your expenses from your income to allocate to savings or credit payments. It also helps you face any financial difficulties you may be experiencing.

What is the difference between gross and net income?

Gross income is the amount of income paid to an employee by an employer before any deductions are made. Net (or nett) income is the amount left over once all deductions have been made, such as income tax, medical aid or pension fund contributions.

What is the difference between needs and wants?

Needs are something that we have to have to live. Wants are everything else we would like to have, but that we don’t actually need to survive. For example, food and a suit- able home are needs, and lottery tickets and designer jeans are wants.

What is a primary and secondary debt?

A primary debt is one that is a secured loan, which means you have the risk of losing your house or property. Another example would be one where legal action has already been taken, or you have received a Section 129 letter of demand. Primary debts could also be those with the highest interest rates or that only have a few instalments remaining.

Secondary debt would be all other forms of debt, where no security has been given. Depending on your relationship with the guarantor, a suretyship could be a primary or a secondary debt.