MONEY CLINIC: How can I get my finances in order to build capital?

QUESTION: Hi Money Clinic. I am a 27-year-old single parent living with family at the moment. I would like to move out of the family home, but both my mother’s and my finances are in shambles. I recently got permanently appointed at work, but my take-home salary is significantly less than when I was contracted due to the mandatory deductions (medical aid, funeral cover, life cover, etc). I do not have a completed degree but have 7 years of working experience. My question is, how do I start to go about getting my finances in order to be able to move? What can I do to earn additional income with no capital, etc?

ANSWER: Jaco Leuvennink, seasoned financial journalist and freelancer for Fin24, answers: The very first thing to do is to sit down and draw up a monthly budget. Having and keeping to a budget or spending plan helps you to ensure that you have enough money for your needs while at the same time, you can gradually start to build up greater financial security and even wealth. It also helps to keep you out of debt or to pay back your debt. If your mother wants to move with you and has some form of income, you can pool your income and have one budget.

Write down your total income and then your expenses. Choose “items” or categories of expenses but keep it as simple as possible. Examples of spending categories are:

• Housing (rent or bond payments, water, electricity etc)

• Food and household needs

• Health care (doctors, medicine, medical aid or insurance)

• Transport

• Clothes and Personal Care

• Child care (school fees)

• Entertainment, sport and welfare/church

• Emergency, Debt payments, Insurance and Saving

Obviously the income and expenditure should be “in balance” (what you spend should not be more than your income). If you struggle to cover expenses, try to cut to basic needs or “musts”. But try not to skip items like entertainment, personal care and especially not emergencies. And never take on debt to cover living expenses. Credit/debt should only be used to buy assets like a house or maybe a car or instruments necessary to earn a living – but then only when your current income is enough to cover the loan costs (interest and capital repayment).

There are general guidelines on how much to spend on what. These include not to spend more than 25% of your income on housing. There is also the so-called 50-30-20 principle where 50% goes for needs, 30% for wants and 20% for savings.

Another is the 60-40 principle where 60% of gross income goes for fixed expenses (absolute necessities like housing, food, transport, tax, insurance and other fixed payments) and 40% for so called wants, extraordinary, emergency (fluctuating and trimmable) expenses.

But remember, your personalised budget would depend on your income and personal circumstances. Being a single parent, it might be difficult to take on extra work to earn an additional income, but if you have a hobby or special skills, you might look at selling some product or service based on that. It might also be a good idea to try and finish a tertiary qualification as a longer term project to improve your earnings.

Courtesy of Fin24