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Your guide to budgeting (plus a real-world example)

We find out how you should allocate your after-tax earnings, and we consider a practical example of what this looks like.

Image by Kelly Sikkema on Unsplash.

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In the US, the most popular way of dividing your after-tax income is by following the 50/30/20 rule. This means that 50% of your net income should be spent on fixed monthly expenses (rent, utilities), 30% should be spent on variable expenses (dining out, games), and 20% should be saved for the future.

This guideline is also used in South Africa. However, since goods and services are weighted differently abroad, it makes sense to consider a slight variation on these percentages. Based on South African trends, this is ideally how you should divide your after-tax earnings:

Life can be challenging when you live month-to-month – especially when something goes wrong. It’s important to have money stashed away for emergencies, and the sooner you start planning for your golden years the better.

You should aim to dedicate 30% of your post-tax income towards your future. You can build your emergency fund, contribute towards your retirement fund, or invest your money – either through a financial adviser, or directly on the stock market.

This also means preparing for unexpected expenses, such as life cover, funeral cover, and a medical aid or hospital plan.

When it comes to holding and settling debt, “thirty percent” is the go-to figure. Just like your debt utilisation should not exceed 30%, you should devote 30% of your net pay towards your debt.

When it comes to growing your credit score, the most important factor is your payment history. If lenders can report that you paid your bills in full and on time, then you will both get out of debt sooner, and you will improve your credit score.

Make sure your loans, credit cards, and any other outstanding debt is your first priority. However, if you’re struggling with this, you can start rehabilitation by taking out a debt consolidation loan.

The bulk of your after-tax income should cover your general monthly expenses. This includes – but is not limited to – your rent, groceries, utilities, entertainment, and transport costs.

Some of these expenses are fixed, such as your rent, and you can expect to pay the exact same amount every month. This means that your “wiggle room” comes in when you consider your other expenses, such as your utilities and entertainment. By saving on water and electricity, and slightly reducing your dining-out experiences, you can open up more funds to save towards your future.

Nowadays, you also need to consider your monthly expenditure on your phone and internet. Click on either of these to find out whether you can save on your current package.

Imagine you earn an income of R15,000 per month. Based on current tax rates, you will receive R13,459 after your company has settled your Pay As You Earn (PAYE) taxes.

From here, you need to divide your take-home pay into the above mentioned categories. To calculate these numbers, multiply your income by the assigned percentages (for example, 30% = 0.3 X R13,459):

1. Protecting your future:

You will have R4,037.70 to spend in this category. You might allocate R500 to your retirement fund, R500 towards your life and funeral cover, R500 to your medical aid, R1,500 to your emergency fund, and then R1,000 towards saving for your children’s tertiary education. This will leave you with an excess of R37.70.

2. Settling debt repayments:

Since this category has the same percentage, you will also allocate R4,037.70 to it. Your credit card bills may be R1,250, your vehicle finance may be R2,000, and your personal loan could be R720. This leaves you with an excess of R67.70.

3. Covering your expenses:

Finally, you will set out R5,383.60 to cover your basic costs. Imagine your rent costs R3,500, your groceries R1,200, new clothes R300, and your data costs R250. This leaves you with R133.60 in excess.

Once you’ve planned out your budget and settled all your bills, you can round up your excess from each category (total of R239) and either add it to your personal savings, or treat yourself to a gift or outing.

It’s important to note that this is an ideal example, and sometimes your personal circumstances won’t allow you to allocate your money into the same brackets. But don’t be discouraged by this. Sit down and work out a budget that suits your needs. The above is simply a guideline – not an absolute rule.

When it comes to budgeting, you can make use of an online app, you can record it on an excel sheet on your computer, or you can use a simple notebook. All of these are effective, and it’s up to you to choose the one that works best for you.

If you’d like to find out more about managing your finances, sign up to ClearScore and have a look at your coaching dashboard for free, self-paced courses.


Isabelle is a freelance finance writer and journalist in Cape Town. She helps make managing your personal finances calm, clear and easy to understand.