#PersonalFinance: Balancing your earning and spending

Understanding your money movement is very important in wealth creation. Those who achieved wealth took time to know
their income, know their expenses and plan what is kept as savings. In our Old Mutual Money Management education this week, we look at what you need to do to be in control of your money.

Do you know exactly what you earn, or exactly where your hard-earned money is going each month? A great secret of
wealthy people is that they take control of their earnings and expenses. The Secret of the Elephant says that knowledge is power. Know and remember the details of your earnings and spending.

Learn what you earn, know what you owe and comprehend

what you spend. Unlike the elephant, human memory is unreliable. Luckily, we have the ability to read and write to help
us remember. So with proper record-keeping we can remember as well as the elephant. Collect the details of your
income and spending – and write it down.

Proper record-keeping will help you understand your spending
habits so much better. It might surprise you to see how much you actually spend on items such as transport, lunches, cell phones, relaxation, account payments, etc. Once you have
recorded what you actually earn and spend your money on,you can plan how to change your spending to suit your income and future goals. This knowledge gives you the power to
change.

Budgeting is a skill that everyone can learn. Don’t be like
Brezhnev and think that knowing more or less what you earn and spend is good enough. To be in control of your finances,you need to actively take control. Be honest with yourself and
find out exactly what you are spending your money on. Careful budgeting is key to creating wealth.

Learn what you earn and know what you owe! Keeping records and budgeting is the secret to wealth. I know I earn N50,000 per month, but my ATM slip always shows less. I can never remember what I spent my money on, but by the middle of the month it is all gone.

How do I take control of my money matters? Learning to budget is a very important life skill. All you need to budget successfully is a commitment to getting control over your finances, a calculator, some paper and a pen. It’s really easy.

A budget will help you to: know how you are actually spending your money; decide on your priorities and what needs to be changed; plan how to use your money in the future; and take control of your finances.

Step 1: Learn what you earn; Look at your salary slip and bank
statements; How much money is coming in each month? What deductions are taken from your salary?

Step 2: Know what you owe – record your expenses; Write
down all your expenses; what do you spend your money on
now? What money do you owe?
Are there other expenses due in the next 6 months?

Step 3: Reflect on and change your expenses; Work out your
income less your expenses. Are you living beyond your means?
What can you sacrifice or change? Are you saving enough?

Step 4: Draw up your budget; Design a workable budget for
your household. What is your household’s disposable income?
Plan your fixed, variable and irregular expenses. What can you
adjust to live within your means?

Step 5: Review your budget; At the end of each month,
compare your budgeted expenses to your actual expenses.
Are you sticking to your budget? Is your budget realistic?
What changes does your budget need? Are we losing control?

These days we see very little “real” money or physical cash.

Weekly wages might still be paid in cash, but most salaries are transferred directly into our bank accounts electronically at the end of the month.

Debit orders and stop orders often pay for bond repayments,cell phone accounts, insurance premiums and other monthly expenses automatically. People are using less cash for these.

We can buy clothing, furniture, air-time and even groceries using ATM debit cards, store cards or credit cards.
Other accounts can be paid from an ATM, via telephone banking or using the internet, without any real cash ever
changing hands. Convenient? Yes, but it does make the money that we earn a bit unreal. It is easy to forget that we spend our money when we don’t see the money.

Many shops in fact encourage you to buy now and pay later. Money can be spent even when you don’t have money to spend! This modern world makes record-keeping and budgeting more important than ever. If you don’t know what is coming in, and you’re not sure what is going out, you’ll never be able to see where you might be able to find extra money for savings. This is why a budget is so important.

Step 1: Learn what you earn
The first step in budgeting is to know exactly what you earn
and exactly what is left after all deductions. You must know
what your employer deducts from your salary, and how your
net salary is calculated. Yes, but have you ever looked at the
pay slip that I give you? Do you even know what those
deductions are for and if they are correct?

Of course I know what I earn! You pay me N50,000 per month.Did you know…By law, your employer must give you a pay slip each month. This is the key to understanding what you earn.
Taking control means not just accepting what your pay slip says.

Tax tables are complicated, and even employers can make mistakes! Check your payslip every month. Does it show
deductions that you haven’t agreed to? Is your medical aid deduction correct?

Are you paying for benefits that you no
longer have (e.g. parking)? You have the right to question and
understand how your monthly salary is calculated.

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