What we never budget for – Standard Bank
Creating a budget can help you stay in control of your finances, but many people become unstuck because they forget to take account of uncommon but important expenses. In theory, a budget should structure our spending, but human nature causes us to deviate from our plans and many expenses sneak in without being accounted for. Surprise costs like car repairs, unplanned getaways, school trips and medical costs can throw a monthly spending plan out of kilter.
“These are relatively manageable expenses, but we routinely forget to consider some significant expenses as well, and these can wreck even the most carefully planned budgets,” says Andrew van der Hoven, head of Relationship Banking at Standard Bank.
Below, Van der Hoven lists the things people commonly forget and also the most important expenses to include in your monthly budget planning:
- Taxes: If you are a full-time employee your tax bill is usually taken care of, as tax is deducted from your salary each month. However, capital gains tax from the sale of stocks or property, or other forms of income may trip you up if you don’t keep an eye on it.
“If you earn income from sources besides your salary, then a good tax adviser is worth their weight in the money they save you,” suggests Van der Hoven. “The self-employed are also vulnerable to tax short-falls, so a tax adviser is even more important for this group of individuals, especially if they are VAT registered.”
- Child maintenance: Both parents are affected by this obligation in the event of a divorce. The receiver of the support may budget for the income, but the liable parent may not hold up their end of the bargain for a number of reasons, so relying on this income can be a challenge. Conversely, the parent who pays maintenance may be hit with unexpected bills outside of the agreed payment, such as medical costs.
“Putting aside extra cash for this expense is a good idea for both parties, even if it’s only a few hundred rand a month,” says Van der Hoven. “This can provide a lifeline if payments are not made or extra money is required to support a child.”
- Needy family members: In tough economic conditions, we are often called upon to help family or friends out of financial difficulties.
“If you have not budgeted for this possibility, it could upset your cash flow,” he points out. If the loan or donation will cause you financial hardship, consider options other than cash assistance. Family support is an area most people don’t budget for, because the expense of supporting our immediate family is demanding enough.
“You are under no obligation to help, but if you know you will capitulate, this type of emergency must be planned for.”
- Retirement savings: This is an old faithful, but many people make the mistake of focusing on the spending element of a budget, rather than the saving.
“Saving for retirement should be an integral part of everyone’s budget. See a financial adviser to get a realistic view of how much you will need to save to live comfortably once you stop working,” says Van der Hoven.
- Home and car repairs: Most people are reactive to home and car repairs and don’t think to budget for a new roof or tyres.
“If you own a car or home, you will eventually have expenses beyond insurance and petrol. Upkeep can be expensive if you leave it to the last minute, but if you save 2% to 4% of the value of your home and the same on your car, you should be able to manage unexpected costs comfortably.”
- Holidays: People often plan a holiday on impulse, and rely on credit cards to cover their cocktails and canapes, but holidays cost a lot of cash and leaving this out of your budget could see you with big monthly payments.
“Vacations are a part of a balanced life, but not if you fall behind on other bills, as this will inevitably cause a financial imbalance,” he cautions.
Finally, Van der Hoven says, “While some individuals exclude the above items from their budget, others also make the mistake of betting on income that may not come in. For example, if you rent out a property or are expecting a bonus or a windfall from the taxman, the absence of this money will cause severe strain on your budget. So when you budget, use the money that you have – not the money you plan to have. Plan for the worst-case scenario and if the money comes in, it’s a bonus.”