Tailoring your budget to your income

Research* shows that very few South Africans save, and those who do save are not saving enough. This is disturbing because it means that many people will have to limit their financial goals, like paying for their children’s education or building investments to fund a comfortable retirement.

Of course, saving for the future is impossible if you don’t have enough to live on in the present, and nobody can deny that times are tough right now. You might be struggling to find any money left after paying all your bills every month to put into investments – but remember, no matter how little you can afford to save, it’s a better money choice than not saving anything at all.  

The best way to save is to create a budget that suits your income.

The importance of a budget

A budget enables you to take charge of your finances and make confident financial decisions that can help you and your family prosper. As most people discover, without a budget you run the risk of spending more than you have, leading to financial stress. You should create a budget based on your monthly expenses and what percentage of your income you need to devote to each category.

First make a list of essential monthly expenses – both fixed costs like your rent and your internet subscription, gym membership, etc, and variable costs like food, transport and entertainment. Once you know these costs, work out what percentage of your income is realistic to spend on each category.

These percentages will be different for everyone, according to your personal circumstances, but here’s an example of how you could divide up your income in a budget:

  • Housing: 20%
  • Insurance (including health, medical, auto, and life): 15%
  • Food: 15%
  • Transportation: 15%
  • Electricity, water and internet: 15%
  • Savings and investment: 15%
  • Entertainment, clothing, personal spending: 5%

Better money management is all about balance and proportion


Other expenses might affect your percentages. For example, you may need to factor in debt repayment, child-related expenses or child support payments, pet care, or work-related expenses that you’re reimbursed for later. When these expenses crop up, you might need to update your percentages, reducing spending in one category so you can afford the added costs in another without spending more than 100% – in other words, going into debt.

That’s why it’s important to be thorough in accounting for everything that you spend each month. The Nedbank Money app makes it easy to track your spending, which helps you create a budget you can stick to. Simply tap More on the Money app home page, then select MoneyTracker, and you’ll get access to the ultimate budgeting dashboard.

How to fine-tune your budget

Accommodation usually takes up the largest percentage of your budget. However, it’s wise to cap this expense at no more than 30% of your income – if it’s costing you more than that, you should consider living somewhere more affordable. The same goes for transportation – if you’re spending more than 25% of your income on transport, it might make sense to move closer to your job, or to spend that transport money on a vehicle loan every month.

Are you spending too much on electricity – would a gas stove or geyser be more economical? Will you have to choose between new shoes or going out on the town this month, if you want to keep topping up your savings by the usual amount? Once you’ve taken the trouble to prepare a budget, it’s easier to see your financial situation in black and white and make the trade-offs you need, to keep saving and investing.

Being honest about all your monthly expenses – and being ruthless when deciding what are essential costs and what you can do without – will help you tailor your budget to your income and live within your means. Better money management is all about balance and proportion – ‘cutting your coat to fit your cloth’, as the old saying goes.

Learn how you can start saving and investing with Nedbank right now, no matter how much you can afford to save.

*Source: South Africans’ saving habits - Moneyweb