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

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

Living beyond your means is a classic money mistake that is easy to make. Whether you’re spending more than your budget allows or not setting aside enough to cover your bills, when you finally notice, it can be tough to pinpoint where the problem began – and tough to figure out how to get your money on track again.

Among the biggest trends currently are YOLO (You Only Live Once) and FOMO (Fear Of Missing Out), largely in response to relief after almost three years under global lockdown conditions. 

Standard Bank’s Thopi Mhloli, Product Owner: Savings & Investments, says there has definitely been a mind shift towards travel and experiences that people promised themselves when they were in lockdown. 

“It makes perfect sense that people want to live their best lives now, but with those decisions, you also need to take some responsibility towards your future self,” she cautions.

Red flag 1 – unable to account for how you spent your funds

Mhloli says one of the clearest signs of overspending is getting to the bottom of your bank balance and finding you are not able to account for how you spent your funds. 

“One way to address this is by using a budgeting app, like Standard Bank’s Budget Manager, which can help you keep track of your spending and offers helpful tips for cutting expenses so you can save more,” she says.

That brings in the importance of budgeting. They say a budget means telling your money where to go rather than wondering where it went. 

“It sounds so clichéd, but I’ve used the 50/30/20 budget rule my whole life and I tell everyone around me to do the same. Basically, you spend 50% of your salary on your needs, including your rent, your car repayment, fuel, school fees and electricity; 30% goes towards your savings and debt; and 20% goes towards wants or extras such as your streaming services or entertainment,” she says. 

Rita Cool, head of individual consulting strategy at Alexforbes, advises that you plan your annual budget in December each year. 

“Review your budget and cash flow, considering occasional expenses such as 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 in the year ahead and avoid financial pitfalls,” she says.

Red flag 2 – lack of an emergency fund

An emergency fund serves as a financial safety net for unplanned costs. Prioritising an emergency fund can help you better prepare for financial surprises and avoid slipping further into debt. 

The recently released Old Mutual Savings & Investment Monitor found that 53% of South Africans did not have enough money for unplanned expenses, while 62% had little to no savings buffer if they had to suddenly lose their income.  

Remember that your emergency savings should be accessible as you will most likely need these funds in a hurry, and you don’t want to pay unnecessary penalties. The best savings vehicles would be bank deposit accounts or money market funds. 

Red flag 3 – a stagnant savings account

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

Find out if your bank offers a “bank your change” option if you don’t know where to start. Or start with a savings challenge, such as R10 a week. You will be surprised at how those rands and cents start adding up. 

Red flag 4 – insurance relegated to the grudge purchase category

Finally, it is all too easy to relegate insurance to the grudge purchase category, but it offers vital protection against unexpected costs and shields your assets. Santam’s head of market development, Neptal Khoza, points out that almost 80% of South Africans are underinsured by more than 50% when it comes to the true value of their possessions.

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

“While you save on premiums, the reality is that if you had to suffer property damage of R500,000, you would only be paid out for 50%, or R250,000, because you are underinsured by 50%. This means you would need to find the other R250,000 from somewhere – which not many of us have lying around,” he says. DM

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