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Your budget versus your lifestyle

Let’s face it: we all want the lifestyle of our wealthy friends, neighbours or celebrities even when our own lives might be on the right track.  We never seem to have enough, unless of course we decide to change the way we think and how we measure our own success. That starts by living within our means – something that is not an easy decision for most of us to do.

I recently met investors who should have been very well off during retirement as they have managed to save more than R 20 million. Unfortunately, their lifestyle costs are so high that their money will only last for ten to 12 years after retirement.  They need to make drastic changes to their spending habits or retirement is going to be a difficult time for them.

How did this happen?

My sense of these investors is that they earned a great income and never once budgeted to save. Their saving was an accident and something that happened on an ad hoc basis because they never had a spending plan. Your budget is in constant competition with your lifestyle unless you keep it under tight control. Life is about making compromises, but you need to make sure that you take the negativity out of this process and look for positive compromises. What do you really want? Do you want to curb your grocery spending so that you can have one great meal eating out at that fantastic new restaurant? Would you like to send your child to private school or live in the bigger house? Drive the new shiny car or go on a holiday?

You need to decide what makes you happy and spend your money on this. That means you need a budget – something most people don’t have. Once you have worked out what you need every month to cover your lifestyle costs, transfer the difference in your transaction account to another account, where you won’t be tempted to spend it on frivolous items. Hopefully there is an excess in your budget and if there isn’t, get a third party to help you. You are the only one with an emotional attachment to your money and a pair of impartial eyes can help to make you think clearly about your money and to make smarter decisions.

And then you need patience. Once you have decided that you want to take that trip to Italy, you have two choices. You can go immediately and use your credit card or you can save and wait until you have the money to pay for the trip. If you have the cash available; a trip to Italy will cost you at least R 25 000 (as an example). If you decide to pay upfront with a credit card it will cost you between R 44 289 and R 64 843, depending on whether you pay it off in three or five years at an interest rate of 21% per annum. Most of us are able to stomach R 25 000 for such a trip, but R 64 843 is a bit rich. Patience has a real monetary value.

Patience is tested especially when you start to save for retirement. This is usually because we do not have an idea of what retirement will look like. We almost try to avoid it, because it reminds us that we are getting older. If you know where you would like to stay after retirement and what you would like to do with your time, the decision to save for it becomes far easier.

Lifestyle is important; this is how we live every day, but it must fit into your income. So figure out what you can do without to make the things that are really important to you, obtainable.