A budget and savings will give you peace of mind

Interest rate increases should make us aware of the dangers of overspending and the potential debt trap that buying on credit can be.

Interest rate increases should make us aware of the dangers of overspending and the potential debt trap that buying on credit can be.

Many people might be sitting comfortably at home with a sense of financial peace, firmly believing that they are making ends meet.

I congratulate those who live within their budget. You are doing a good job at keeping a positive cash flow. This is a good beginning to achieving financial stability, but I'm sorry to tell you that you are not making ends meet yet.

You see, it is not enough to keep your spending within the limits of your income. You should also be putting money asidefor future needs.

Some will argue that being able to save on a monthly basis is a luxury and falls beyond their means. But, again, I must disagree with you.

To be successful you need to ensure that you keep your expenses in check so that you do not spend more than you earn and are able to put an amount aside every month.

Some situations are unpredictable, which will shift the balance of your budget. Inflation will make your budget balance shift and it can happen without you noticing it.

While your family income remains the same, inflation will cause each one of your rands to have less buying power, which will in turn mean that you will spend more. So unless you save each month, you will soon be living beyond your means.

You also need to consider circumstances that might suddenly result in your budget changing, such as losing a job or illness .

If you don't save for a rainy day, you will be forced to live beyond your means for an unforeseeable period of time. One should have six months living expenses available to deal with these situations.

Planning a strict household budget is an excellent habit. All your expenses must include interest payable on loans or credit cards. If you regularly save a portion of your income, this will help control your spending and create a safety net for you and your family.

Your budget should not only be based on current expenses, you should also make educated guesses on future expenses so that you can plan for the long run. This will allow you to decide what portion of your regular income should go into savings every month.

Each family member must get an allowance that they can spend on their own treats and desires. Special family expenses, such as a new car, a holiday or a new coach, that are not included in the regular day-to-day activities, should also be accounted for.

l The writer is a director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail help@pioneer.co.za