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Welcome to our exclusive series of personal – and business – wealth management insights from Ajay Wasserman, Founder and CEO of the Fio Group. In this article, he explains why you should have an informed budget planning strategy in place to pre-empt a lack of cash flow.

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SUMMARY. The pandemic has taken an emotional and financial toll on the majority of South Africans personally and professionally. It’s now more important than ever to compile feasible personal and business budgeting strategies that are agile enough to be adjusted quickly and effectively. Here’s what you need to know.

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Updated 26 July 2021

The pandemic has taken an emotional and financial toll on the majority of South Africans personally and professionally. Recently, the promising uptick in the vaccine rollout has been marred by civil unrest and looting of businesses, adding another dimension of financial uncertainty. However, it’s vital that the fundamental principle of budgeting needs to remain consistent.

A budgeting strategy, now, more than ever, needs to be agile, meaning adaptable to situational changes and challenges. This should be applied to personal, and business expenses (if you’re a business owner.)

Below, I discuss budgeting strategies for personal financial wellbeing, but the principles for business are similar.

 

Steps to build an effective business budget strategy

  • Analyse fixed and variable expenditure
  • Define/revise short, medium and long-term business goals.
  • Adjust financial forecasts and target profit margins if necessary.
  • Review your budget with a financial professional such as an independent financial adviser.

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Key takeaways

A budgeting strategy needs to be agile, meaning adaptable to situational changes and challenges.

Follow the steps to build an effective business budget strategy:

  • Analyse fixed and variable expenditure
  • Define/revise short, medium and long-term business goals.
  • Adjust financial forecasts and target profit margins if necessary.
  • Review your budget with a financial professional such as an independent financial adviser.

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How to build a successful personal agile financial strategy

Do you usually feel financial pressure by the 20th of the month? It’s a gut-wrenching feeling, isn’t it? It’s a worldwide reality, unfortunately. People often run out of money in the middle of the month, and they cannot afford to buy essentials due to income being unnecessarily spent shortly after payday. This is why it’s important to build a comprehensive budget plan that accounts for your fixed and variable expenditure as well as your short, medium and long-term financial goals.

Having a proper budget set up is one of the most important financial steps for anyone who needs to manage their finances, thereby improving their cash flow from money coming in from your salary. By implementing this method, you can see exactly what expenses still have to go off your account so that you don’t run out of money by the end of the month.

If you’ve never compiled a budget before and are unsure where to start, it’s best to speak to an independent financial adviser (IFA). They will assist you in firstly, understanding your financial situation, and secondly, mapping out your income and expenditure.

The process will

  • Show you how much money you’re earning, and how much you’re spending.
  • Examine what you’re actually spending your money on
  • Determine how much money is required to cover your fixed expenses and how much can be used for variable expenses.

Fixed expenses

These are expenses that you can’t do much about and, therefore, they need to be the first ones you add to your budget. They include bond and vehicle repayments, rent, medical aid scheme insurance and life insurance.

Variable expenses

These are the things on which you choose to spend money. They include entertainment, groceries, eating at restaurants and travel. This is where an IFA can help you decide where you can make cuts to free up money that can be contributed to your cash flow.

Without a custom, structured budget in place, you are likely to find that most of the time you have to use credit cards, overdraft or another type of credit facility towards the end of the month. This is a dangerous strategy and creates a slippery slope leading you into a black hole of debt that you can’t pay back; you’ll also bear the brunt of compound interest, which can make your situation even more dire.

I think the most important thing for you should be to have an Excel spreadsheet or another type of software that you can use to run your budget. The reality is that payments aren’t always made on the same day every month unless you have debit orders. You may have some payments coming off your account on the first of the month, while others may be debited later in the month. By knowing and accommodating these expenses, you should always have cash in your bank to be able to sustain the budget, the expenses and make sure that you manage your money correctly. Alternatively, you could outsource your accounting and tax to a professional business consultancy if that will make things easier for you.

An independent financial advisor (IFA) has the necessary experience, and perhaps most notably, the ability to provide objective advice about your current financial situation. The problem that many people face when reviewing their finances is that it can evoke emotions, overriding logical thinking which is vital if you want to get a grip on your finances.

Once you have finished your first session with an IFA, you should have a broad understanding of your current financial circumstances and what you can do to achieve your short, medium and long-term goals. At Fio, we have a cherry-picked team of independent financial advisers who can assist you in creating a sound budget so that you’ll always know where your money is going. We can also recommend different savings products tailored to maximise your wealth.

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Key takeaways

By knowing and accommodating these expenses, you should always have cash in your bank to be able to sustain the budget, the expenses and make sure that you manage your money correctly.

An independent financial advisor (IFA) has the necessary experience, and perhaps most notably, the ability to provide objective advice about your current financial situation. They will help you map out your income and expenditure.

 The process will

  • Show you how much money you’re earning, and how much you’re spending.
  • Examine what you’re actually spending your money on
  • Determine how much money is required to cover your fixed expenses and how much can be used for variable expenses.

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