living

The Importance of Living within your Means

According to an article on the businesstech, many South Africans tenants who rent their homes are living beyond their means. An index that is published by Payprop reveals that the average South African tenant is spending more in terms of rent. The problem comes when the increased amount is not in proportion to an increase in earnings – it is greater.

Johette Smutts, the general manager of Payprop, said initially it was thought that the people paying more were doing so because they were able to afford it. But when the ratio of debt against income was analysed, it became apparent that this was not necessarily the case and that therefore, these tenants were in effect living beyond their means in order just to keep pace with others.

Finding yourself on the slippery slope

If you find yourself on the slippery slope of spending more than you are earning, it spells trouble. The only way people in this position can survive is by eating into any savings they may have set aside, or by using credit cards. Either way, these resources will eventually run out. You could lose all your savings or run up higher and higher credit card bulls that one day you will not be able to repay.

The good news is that there are many ways that the average South African tenant can cut his or her outgoings down. Yes, it will mean foregoing enjoying some of the these you are spending money on, at least until you can balance your income against your expenditure. But having done that, you will at least have attained financial stability.

Be prepared for the unexpected

But just balancing the books in this way is not really enough. It will allow you to get by, but what happens when something unexpected happens. You might, for example, need money to get your car repaired. If you haven’t got any cash in reserve, you could be in trouble.

To be financially secure, you need to create a positive gap between how much you earn and how much you spend so that you can create some savings. These savings will act as an emergency fund that you can call on when something unforeseen crops up.

At this point in time, South Africa is ranked the lowest of all G20 countries when it comes to household saving rates. It is something that needs to be addressed for the financial well-being of the population. Here’s how you can make a start.

Creating a personal budget plan

The only way you can even out your earning versus spending ratio is to create a budget plan. This is a vehicle for putting all your financial matters together in one place so that you can review them at leisure. There are a number of free guides to help you put your budget plan together.

When you put a budget together, you will be able to see exactly how much you are spending, and exactly what it is that you are spending your money on. This is then subtracted from your earning, and the net figure you are left with tells you the state of your financial health.

If you have never created a budget before and you are not quite sure how to go about doing so, you’ll find plenty of help online. You can either download a blank budget plan in Excel spreadsheet format, or you can print or copy a plan in pdf format.

However you decide to do it, the sooner you make a start at getting your personal finances under control. It is well worth doing. Creating a budget and sticking to it is by far the best way of making sure you are living within your means.

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