Last month we started our series on Budgeting with the easy envelope system. Today we look at a slightly more complicated method of budgeting using the closed budget.
The premise behind the closed budget is that just because you got an increase doesn’t mean that your expenses or lifestyle change. So let’s say you don’t spend the entire grocery budget this month and you have a surplus, you don’t reallocate that money to another expense. You leave it in it’s own category for the month you need to spend more on groceries.
In its basic form it’s broken down into the Essentials, the needs and the wants, any extra money is then saved.
Each of the “Essentials” are basic cost’s you need to cover, now not all these costs are monthly costs and some of these fees can be paid in advance like your school fee’s, most schools offer a discount when you pay upfront in full. A tricky part is being conscious of when you need to cover the expense, your car needs to be serviced and licensed yearly, your budget needs to reflect the money you put aside monthly for this annual expense. House maintenance includes things like painting and repairs to roof or gutters or windows and doors. These generally don’t happen every month and the general rule of house painting is every 5 years if you have thatch you need to treat it yearly to keep it fire retardant.
Good practice to implement is having a high-interest savings account that you put all these yearly fees into every month. So that when they are due you just withdraw or transfer out of that account or you make use of the access portion of your home loan as your savings account. But remember if you do that to ensure that the repayment to the home loan is fixed.
Needs and wants are additional “expenses” that you don’t need to cover to be able to do life. Most of it is all the pretty extra’s we have all been programmed to need.
These are things like:
- Netflix and movies
- Parties and gifts
- Name-brand clothing
- Latest technology for your mobile or computer
- Gym membership / Sports membership
- Vacation getaways
Many of the above can be done, provided you have covered all your essential costs and have saved for the item, take advantage of special offers and pay for the item upfront.
Other luxury items that can be included are:
- Smart television sets
- BluRay players
- Playstations – or any of the other variants on the market
But a word of warning, don’t spend all your savings on these. Make sure you keep some in reserve for when the washing machine or fridge decide they have worked enough and just quit on you.
Other unforeseen expenses often happen as the year draws to a close, things like your medical aid running out or inflation increases on your Essential costs, that you hadn’t been able to foresee. (Sudden fuel increases, or meat price skyrocketing because of a draught).
I have a passion for making order out of chaotic numbers and papers. With 20 years experience, I have mastered getting those admin ducks to obey and stay in their rows.