The inconvenient truth

Correspondent | Monday June 29, 2015 15:02

Arnold was given a new idea to help with his budget this month. Instead of just writing his budget down in a book, he’s going to draw the amounts he has planned for each expense, and put the amounts into several marked envelopes.

He has 9 envelopes in total, marked as follows:

Envelope 1:             Groceries

Envelope 2:            Lunch at Work

Envelope 3:             Electricity

Envelope 4:            Water

Envelope 5:            Cell Phone

Envelope 6:            Debts

Envelope 7:            Rent

Envelope 8:             Car/Fuel/Transport

Envelope 9:            Savings

Arnold has stayed in control of his money, and prevented his lenders from deducting from his pay-slip. There’s only one expense that is deducted from his payslip before he receives his salary – that’s PAYE (pay as you earn) tax.

Arnold carefully counts out the allotted amounts of cash into each envelope.  It is immediately obvious which the fattest envelopes are.  Unfortunately his Debt payment envelope is double the thickness of the others.

Arnold gives himself a quick reality check; suddenly he sees that he has spent double the amount on things he has purchased in the past, than he can now afford for current and future spending.

 The questions he asks himself are:

Are the things he bought on credit still worth the amount of money he spent on them? 

Does Arnold still use the items he is still paying for?

When you’re making financial decisions, it can be helpful to think of yourself now, and then envisage a ‘Future-You’ which is still you, but in a year (or more) time. 

Buying goods now on credit will make Future-You poorer. If you buy with cash what you can afford today, Future-You gets the benefit, but not the costs.

Arnold must first pay his expenses that are fixed - that will not change this month, i.e. His rent.  He then files the empty envelope away for next month.

Arnold’s next priority is to visit his creditors and pay them all in cash. As they are no longer taking the money direct from his pay slip, he can see he has saved himself the administration charges that can be charged by his union collecting on his payslip.  The couple of hundred pula extra he has saved by paying his debts himself gives him a little extra cash that he can put straight into his savings envelope.

Arnold’s cell phone is on pay-as-you-go, and he takes advantage of the double up airtime offer at the end of each month.  He used to spend P400 a month on airtime. He buys P200 airtime, and loads the airtime on the day the double up special is on offer. He now has P400 credit and has saved himself P200, which he puts into his savings envelope.

Next Arnold takes his shopping list to his preferred grocery store, and purchases his monthly groceries.  His grocery list is longer than usual, as he wants to cook all his meals at home this month.  His calculations show that if he cooks his own lunches for work, instead of buying them, he will save himself some more money.

Arnold has allowed for 20 lunches a month – and each lunch would usually cost him about P40 per day.  This totals P800 a month. Arnold takes P600 out of his lunch money envelope and adds it to his grocery money, and takes the other P200 and puts it in his savings packet.  He makes a promise to himself to pack daily lunches for himself, and not buy them each day.

Arnold makes a concerted effort to stick to his grocery list, but allows himself his one “Cheat Item”, and heads for the till before temptation steps in.

The teller tells him the amount of his groceries. Usually Arnold would swipe his debit card to pay for his groceries.  This time, he has his grocery envelope and he counts out the money. As he counts out the pile of money, he feels guilty by how big the pile of cash is. “Perhaps”, he thinks, “I didn’t need all of these things, it is costing so much!”A lesson to learn is that, when we see the actual money, it seems a lot more then when it’s just a figure on a piece of paper.  Arnold is feeling uncomfortable and makes a promise to himself to use everything he has purchased, to not let anything go to waste. As the month draws to a close, Arnold receives his lights and water bills, which he goes to pay.  His budget more then covered the amount, so he puts the change into his savings envelope.

Unfortunately, the same cannot be said for his transport costs this month. He had to travel back to the village to do some family visits that cost him more than usual. Arnold is forced to take P100 out of his savings envelope. 

The result of Arnold’s experiment shows extra savings in his savings envelope, proving that he can live within his budget.

By planning our budget, and saving wherever we can, we can build up short term Emergency Fund savings by putting our change and savings into our Saving’s Envelope.

Accessing our short term emergency fund when needed for any shortfalls prevents us getting into debt and incurring interest costs.

All you have to do is carefully plan your budget, and then stick to the plan.

Can you try this experiment for one month and see the results?

Remember: keep your money is a safe secure place – and pay as many people as possible as soon as you have the money.

“We believe that true value of money is not how much you start with, but what you do with it.”

Author: Somolekae Modikwa – Business Development Manager with S.C.I. Training (Pty) Ltd. © S.C.I. Training is a BQA accredited training institution specialising in Financial Education. We also offer Ethical Collection services for companies with debtors and Debt Counselling services for those in financial distress. For help and information contact 3180111 or 75114375 or money@wellness.co.bw

* Names in this article have been changed