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Cars, pets and summer holidays

The missing piece in many personal budgets.
Creating a 'sinking fund' for any major upcoming expenditure items can take away a lot of the angst of having to use credit when the time does come. Image: Shutterstock

Having a budget is one of the most useful ways to stay in control of your finances. It not only helps to keep your spending below your income, but also allows you to appreciate whether you are spending on the right kinds of things.

Read: Change your relationship with money in 2020

In its simplest form, a budget requires you to take your income, and spread it between your expenses. That should also include setting some aside for your long term investments.

However, the problem with most budgets is that while they do a good job of tracking ongoing expenses like your bond repayments, petrol and groceries, they don’t consider your future expenses. These are easily overlooked, but shouldn’t be ignored.

Be prepared

Consider, for example, your car, which needs to be serviced every year. That cost is not an expense that occurs every month, but when it arrives can run to a few thousand rand.

On a more significant scale, you may need to buy a new car at some point. You could, of course, use credit for that, but that would mean spending a lot more on something that, with time, will become worth less and less.

Think of it like a business that knows that certain large expenses are inevitable.

A lodge, for example, is aware that it has to replace its beds every few years. A well-run operation will ensure that money for those beds is accumulated over time so that when the point is reached that they actually need to be bought, the funds are already available.

Just because this is an expense that is only going to occur some time in the future doesn’t make it any less significant. In fact, it may be more so, because having to find a few thousand rand for a once-off cost can throw off the rest of your budget entirely.

Don’t call 911

Catering for these sorts of things is not the same as having an emergency savings fund. While that is a crucial safety net, it should be used for large, unexpected expenses, such as having to replace your car’s gearbox or an unexpected medical procedure not covered by medical aid. In a worst-case scenario, it should protect you if you lose your job by covering all of your expenses for a few months.

Future expenses, on the other hand, are things that you know are coming.

In some instances, budgets do plan for them. Putting aside something every month into a fund for a child’s education, for instance, is a priority for a lot of people.

Holidays are also something that many people are keen to save towards. Saving for a trip over a whole year not only allows you to have a more accurate idea of what you can actually afford, but takes away a lot of the angst of having to use credit.

Read: Use financial savvy to improve your financial health

There are, however, many other things that could be planned for financially. These include your pets’ annual check-ups and vaccinations, repainting your house, attending training courses for professional development, having a baby, and Christmas spending.

Help yourself

The list will differ from individual to individual, and household to household, but if there is something that you know is going to require an outlay of cash at some point, it is a good idea to prepare for it.

The way to do this is to identify the major expenses that you anticipate in the future, and create a ‘sinking fund’ for each of them.

This is a savings vehicle that you add to every month, with the goal of reaching the required amount to cover the cost at the time at which it arrives.

For instance, if you know that taking your pets to the vet for their annual visit costs you R1 800, then you should budget to put away R150 every month. Then, when the date arrives, the money is already available and you don’t need to upset your budget or use credit to handle it.

On a larger scale, if you know that you will need to buy a new car in three years’ time, identify what you are likely to want and project how much it will cost at that point. This could be, for example, R300 000. If you are able to trade in your current vehicle for R120 000, that means that you need to have saved R180 000, or R5 000 a month for 36 months.

Doing this will not only ensure that you are actually considering all of your expenses, but also save you a lot of money by avoiding unnecessary debt. And for that, it is certainly worth the effort.

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COMMENTS   4

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Stating the absolutely obvious but I guess 90 pct of the population need this advice . This is why Body Corporates now have to include a 10 Year Budget as the Trustees mainly dont have the Financial skills to think that far ahread , so they are forced to.

90% of the population are illiterate.
They don’t read financial articles. Or anything for that matter.
Some of the 10% that are literate are financially illiterate.
Or something like that?

Dear reader, do yourself (and perhaps your children/ family) a favour and read “The richest man in Babylon” by George Clason. Why they don’t make this a prescribed read in the school curriculum is really beyond me. Maybe the banks etc. don’t want the sheeple to know what they don’t know?

The issue about cars – one of the biggest scams ever. A monster devouring your future golden years. Pay a lot of money for a so-called asset that is ever-reducing in value, PLUS pay interest on the money that is busy going down the drain. My previous vehicle was an Isuzu (Izuzu 🙂 ) that had 567 000 km when I had to sell it because company policy changed and punitive measures were introduced for those “harde gatte” whose vehicles don’t have airbags. I was told the bakkie was written off in rural KZN with more than 700 000 km on the clock, with still the original engine and gearbox. My current vehicle is a 2009 VW, approaching 300 000 km. A rebuilt engine will be about R50k but the current engine and gearbox is still fine. My dream is a new VW Tiguan but with a price tag exceeding R700k this is ludicrous. Yes, an older vehicle chows more maintenance money if you do it properly but compare that against the money you are definitely loosing when buying new. Hey, I love the smell of new cars but I love my future pension more.

End of comments.

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