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Fall in love with budgeting, using the 35:25:35 budget principle

23 February 2010 Octogen Group

Octogen, personal financial wellbeing and debt counsellor specialists, have over the years observed that many consumers are experiencing difficulty in sticking to budgeting techniques that would enable them to manage their funds effectively. Paul Slot, Director of Octogen Group says ”to help resolve these problems, we’ve introduced the 35:25:35 budget principle which is easy to apply, effective, and helps consumers to know where they spend their money and which bills are a priority.”

A household budget usually comprises three main categories, being household expenditure, financial services contributions, and debt repayments:

* Household Expenditure: 35% of monthly income should go to this category which includes spending on domestic wages, food, communications, entertainment, security, travelling costs, education, water and electricity

* Financial Services: 25% of monthly income should go to long term life assurance products, short-term insurance, medical aid, pension contributions and towards longer term savings if possible.

* Debt Repayments: 35% of monthly income should go to repayment of debt such as credit card, home mortgage (or rental, if the residence is not owned), car repayments, instalment sale agreements such as furniture, in-store accounts and any other monthly debt repayments.

Adding up the 35:25:35, gives 95%, which means there is 5% left. This should be allocated to an emergency saving fund (as opposed to traditional saving which falls into the financial services category of income spent).

If consumers apply these budget principles they will be able to track exactly where their money is going. Such discipline can significantly improve their spending patterns and possibly reduce the number of over-indebted consumers.

Should consumers discover that they are spending a higher percentage of their budget they should consider contacting a financial wellbeing specialist.

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