What is typically included in a Personal Financial Budget?
Back to Money advice
23 February 2022
I am sure that most people have heard the word “budget” sometime or other in their lives. To some a budget is just a word while to others it’s a code by which they live. To us investment professionals, it’s the foundation upon which to build a solid financial plan that can lead to financial wealth and freedom.

In essence a budget is an estimate or snapshot of all income that you will earn less all expenses you need to survive over a certain period of time, normally a year. 

Setting up a personal budget is easier than most would think. It does not require a degree in finance or complex financial calculations and projections. It just requires some careful thought and honesty! Yip, honesty, as a budget is a personal journey and not there to impress anyone, so being honest with yourself and your money is vital.

Budgets are extremely useful and quite important to not only help manage your daily financial affairs but also your investments. Even our National Treasury uses a budget to succeed.

What is typically included in a Personal Financial Budget?

Haves 

Haves are all income that you expect to earn over the next year. Things like your salary, business interests or profits, income from investments, rental or any other source of income. This is what you have and from this you will need to cover all your daily expenses to survive.

Needs

In essence there are two kinds of needs that are important to account for when drawing up a personal financial budget: Retirement Needs and Living Needs. 

Retirement Needs

Without the provision for investing, your personal budget is fundamentally flawed and your future could be in the balance. We are all on a journey to retirement that we need to budget for right now! Your personal budget must include investing for your retirement needs as an urgent priority. Your future self’s survival depends on it. 

Living Needs

These are all the expenses you need to cover in order to live and survive. Things like rates and taxes, transport, food, accommodation, communication, medical aid, school fees, insurance and the like. Everything needed to pay the bills! 

Wants 

Snazzy watches, happy holidays, fancy tech, bling, shoes and sporting equipment are some of the things that fall into the category of wants. Wants are awesome and make life worth living. After all, we all work hard and need to enjoy the fruits of our labour, but these fruits have their place in the budgeting process. 

A list of wants is fun to make and even better when these become real. Wants are normally part of your short-term savings in your personal budget. Set up an investment goal with the appropriate investment vehicle for each of your wants and include the amount you are contributing to each in your personal budget.

It is better to save for wants as opposed to creating debt that weakens your financial position. 

Fun Money

Fun money is what remains after all your “needs and wants” have been deducted from your “haves”. 

Fun money is exactly that, there to have fun! Everyone’s definition of fun varies but we all understand fun and having fun is good for the soul. Fun money is money that you can spend on whatever without having to feel guilty or creating debt! A treat to the day Spa or a larney dinner at “Le Expensive” is what this money is there for!

You earned it, enjoy it!

An example of an easy to use Personal Financial Budget?

Below is an example of an easy to set up and use personal monthly budget. The order of things are important when setting up a personal financial budget i.e. Haves - Needs - Wants = Fun Money, in that order only, no exceptions! 

 

January 

Haves

(All money coming in)

Rand Budget

Totals

 

Salary

R 20 000

 

 

Rental Income

R 10 000

 

 

Total Haves

 

R 30 000

 

 

 

 

 

Needs

 

 

 

Retirement Needs

(You gonna get old – You ready?)

 

 

 

NB - Retirement Investing (10% of haves is a good start but the more the better!)

R 3 000

 

 

Tax Free Investing (Clever Investing J)

R 2 000

 

 

Other investments – Offshore investment

R 500

 

 

Subtract Total Survival Needs

 

(R 5 500)

 

 

 

 

 

Living Needs

(You gotta live)

 

 

 

Rates and Taxes

R 1 000

 

 

Insurance

R 500

 

 

Medical Aid

R 3 000

 

 

Food

R 5 000

 

 

Car payment

R 2 000

 

 

Bond

R 8 000

 

 

Subtract Total Living Needs

 

(R 19 500)

 

 

 

 

 

Wants

(Short-Term Savings Goals)

 

 

Months left to goal J

Fishing Reel

R 200

 

10

SA Rugby Supporters Tour 2030

R 500

 

50

Off-road Bicycle

R 500

 

15

Play Station

R 300

 

18

TV Set

R 500

 

10

Pool Table

R 500

 

8

Subtract Total Wants

 

(R 2 500)

 

 

 

 

 

Fun Money! (Live it up! J)

 

R 2 500

 

 

TIP - Remember as your income increases, increase your retirement fund contributions in your budget by the same amount. In other words if your Haves increases by 10%, then increase your Retirement Needs by 10% too!

 

A personal financial budget is easy and fun to set up. It’s the dividing line between working smartly with your money or losing control! Start your personal financial budget and create some fun money for yourself today! 

 

 

Gareth van Deventer CFP®

OUTvest is an authorised FSP. All investments are exposed to risk, not guaranteed and dependent on the performance of the underlying assets. Ts and Cs apply.

 

 

 

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