Take control of your finances

A recent World Bank survey named South Africa as the world’s most indebted society and reported that 10.26 million people have accounts that are three months in arrears.

If you spent National Youth Day hanging out with your friends, wasting money on things you don’t really need, perhaps it’s time to do something constructive and empowering to fix your finances.

“Running out of money every month, constantly being broke and struggling to pay even basic expenses is not cool nor clever. When this happens you are not in control of your life, you’re a slave to your poor financial planning and you better do something before living beyond your means becomes a habit,” said Mr Gavin Moir, head of marketing at Direct Axis.

Young people may be particularly prone to irresponsible spending.

A Student Village online survey found that the country’s students don’t care about saving or investing, but spending money now.

The situation is getting worse, with spending on the rise.

Even though 86 percent of them rely on parents and family for income, in many cases the survey showed they were spending more than employed people every month.

Even more surprising was that male students tend to outspend their female counterparts.

The only silver lining is that most want to learn to better manage their finances, with 61 percent saying they want to know how to save and 54 percent keen to find out how to budget.

Mr Moir suggests three steps for taking control of your finances.

r Build a budget: You need to know what your income is and how you’re spending it.

Draw a vertical line on a piece of paper. Write down all your income on the left. This should include allowances from family or parents, income for part or full-time work and any bursary or sponsorship income.

On the right, jot down all your expenses. Start with regular of fixed expenses such as rent, car finance payments or a gym membership.

Then list variable expenses such as cellphone costs, transport, clothes, food and entertainment.

You’ve just drawn up a budget. The scary part is when you add up the right-hand column, because if it exceeds or comes close to the one on the left, you need to seriously cut your spending.

r Cut your costs: Non-essential costs such as entertainment are the best place to start.

Instead of eating out twice a week or ordering pizza, you may be able to reduce spending by cooking at home.

Another good tip is when you go out with your friends, set a budget. Once you’ve spent it, go home.

You can also save a lot by getting rid of short-term debt. Typically this is the kind you accumulate on store cards.

It’s an expensive way to buy things because it usually attracts high interest rates.

If you have a lot of this sort of debt, you may want to consider consolidating it into a single loan, which is easier to manage.

r Set yourself up: When you get your spending under control, try to save between 10 percent and 15 percent of your monthly income. The government rewards you for doing this and you can save up to R30 000 a year tax-free.

You can use this money as a deposit on a car, to fund an overseas trip or even to start an investment portfolio.

“The most difficult part of taking control of your finances is getting started. Once you’ve taken that first step you’ll feel empowered and wonder why you procrastinated for so long,” said Mr Moir.