Running your finances like a mini-nation? No? Why not?

Trurman Zuma, , chief executive of Saving at Sanlam.

That new smartphone has such amazing features. How did you ever live without a 12 megapixel camera? Can you really move forward without a 25% brighter screen? You don’t just want it, you need it right? And you’ll happily pay the extra R399 a month to get it. And everyone will think you’re super cool and successful.

In a world of instant gratification, easy access to credit and sky high credit limits, this is a common scenario. Way more common, in fact, than someone saying ‘Nah I’m cool with my existing phone, thanks service provider’. Most of us don’t stop to ask if we can really afford it. Many of us don’t have a good enough view of our finances to know if we have a spare R399 lying around to allocate to a better phone.

In a bid to galvanise more South Africans to start budgeting, Sanlam this week launched ‘Family Budget Week’ (6-10 March). Timed for soon after the National Budget Speech – while the concept and importance of budgeting is top of mind – the initiative uses a range of tools, including very simple budgeting steps and a partnership with comedian Tumi Morake, to galvanise South Africans to take charge of their finances.

Sanlam’s head of savings Trurman Zuma, says many South Africans go from one month to the next with no budget and no long-term view of their finances. “Budgeting is something most people come into contact with often. The country has a budget – we just heard how South Africa’s money will be allocated on 22 February. Every business has a budget, every school, church, shop and NGO has a budget. All these organisations budget so they can pay the bills while at the same time thriving and meeting their goals. The same principles apply to families and individuals. On some level, we must all know this. But we just don’t seem to want to do it.”

But do you really need a budget?

“A budget is the first step to a financial plan. So do you really need a budget? The answer is most definitely yes. Yes, if you don’t want to allocate an ever increasing percentage of your hard earned money towards settling interest fees on debt. Yes, if you want to be one of the smart ones who makes those clever money moves that allow you to thrive rather than survive. Yes, if you want to save for a deposit on your dream home. And yes if you want to retire at an age that allows you to enjoy your golden years.

“There is a common perception that the rich earn a huge amount of money. But in fact, their financial success is often down to clever money management, rather than earnings. This is proved by looking at that person who has three properties and a healthy pile of savings by the time they retire. They didn’t necessarily earn more than others but they were very clever with how they managed their money. On the flip side, we’ve all heard the stories of massive stars who’ve gone broke from lack of poor financial decisions and reckless spending.”

Why don’t we budget?

Zuma says there are a lot of factors at play in why so many families don’t have a budget. “There is no easy answer, unfortunately. I think fear drives us a lot. We’re afraid that when we start to budget we’ll get a big shock. We’ll realise just how far outside our means we have been living in an environment where access to credit is so easy. We’ll realise that we’re a long, long way from clawing ourselves back into the black.

“We’re also afraid that, if we know just how little we have we’ll have to curb our extravagant lifestyle – not something anyone used to instant gratification and status is likely to be too keen on.”

Zuma says another issue is that people focus on the top number, their earnings, rather than the bottom, what’s left after expenses are covered. “The issue with this is that when someone gets a raise, they feel they can spend more immediately. Rather than allocating the extra earnings to savings, retirement, settling of debt. So they can often get into more and more financial difficulty as they earn more because they are not managing their money any better.”

He said plastic also played a big role. “When we did our ‘One Rand’ experiments a few years ago, we challenged firstly an individual and then a family to live off their salary in cash – in the form of R1 coins – for a month. They got the fright of their lives. They’d been living way outside their means and maxing out their credit card credit limit, one of the most expensive forms of debt, to fund their lifestyles. When we checked in with our One Randers recently, we were pleasantly surprised to see they had permanently changed the way they managed monthly. They were running budgets and avoiding credit as much as possible.”