Prime this year for success by starting on the right financial footing

Budgeting sucks. But a budget is the single most effective weapon for fighting debt and planning your future. “You’re the CFO of your own enterprise and I know of no successful CFO who operates without a budget,” says Eleanor Blayney, a consumer advocate for the Certified Financial Planner Board of Standards. Follow this plan to mobilise your money, cut wasteful spending and end this year in the black.

Step 1 Track your spending

Writing down every purchase can grow tiresome. Simplify the process by paying all your bills online through your checking account and making the rest of your purchases with a debit or credit card. Do this for three months.

Step 2 Analyse your expenses

At the end of three months, take a look at where your money went. You can do it the old-fashioned way, with a notepad and your debit- and credit-card statements. Or you can sync your accounts with moneysmart.co.za. “Not all budgets are the same,” says J.J. Burns, eponymous president of US wealth-management firm J.J. Burns & Company. “They vary according to lifestyle.” So find your economic status below, and compare your spending.

Step 3 Build your budget

Now that you know how much you’re spending – and should be spending – you can build your budget accordingly. The easiest approach is to create an Excel spreadsheet with columns for budgeted and actual expenses in each category you want to track. A lot of people go crazy with this, trying to track every last item (lunch, beer, concerts). That’s tedious. Our advice: use the five categories below, and within these categories list all the expenses you pay online from your checking account (so your rent or mortgage payment falls under housing, DStv account under pleasure/personal, and so on). Also, under living expenses and pleasure/personal, add a line for cash. Or use only your debit and credit cards for living expenses and track accordingly.

Step 4 Run your business

Congratulations! The hard part is over. Now all you have to do is enter your expenses on your budget spreadsheet each month, and you’ll see if you’re running a tight (or sinking) ship. The course corrections you make to stay on track are key, says Burns. “If your lifestyle changes, your budget needs to as well,” he says. “If your plan stays stagnant, so will your financial growth.”

Three study-based ways to not budge from your budget
Stay humble

People who lack financial confidence often make the best financial decisions. In a 2008 study in the Journal of Consumer Research, people who were told that budgeting was difficult estimated their expenses more accurately than those who were told it was easy. Reassess your budget every three to six months to see where you can cut needless purchases and focus more on smart financial planning, says Blayney.

Stay happy

You’re most likely to splurge on luxury goods when you’re low on self-esteem, a 2010 Cornell University study found. People may buy flashy things to help soothe their bruised egos, the researchers believe.

Stay focused

Long-term money planners have higher credit bureau scores and enjoy a lower cost of credit as a result, according to a 2009 study in the Journal of Consumer Research. The gain: better-than-average long-term planning can cut nearly R200 000 on a 30-year bond on a R2-million home, according to the study.