Credit can be your best friend (if you use it wisely), or a dangerous enemy (if you don’t). Here’s how to use it smartly to keep your budget balanced.
Budgeting is a simple science: you take your income, subtract your expenses, and – by keeping your spending within responsible limits – you do your best to ensure you’re left with some money at the end of the month. Credit complicates that picture.
Credit give you access to more money – but it’s not income. It’s a loan, and you’ll need to pay it back to avoid paying interest.
However, if you manage it wisely, credit can form a smart part of your budget and help you to pay for the things you need (or for unexpected expenses!). By accessing credit responsibly, you can stretch your budget when you need to.
Credit can also be good for ringfencing what you spend. For example, let’s say you allocate R1000 to spend on your RCS Store Card every month to spoil yourself. If you pay that off within the 55-day interest-free period, you won’t incur extra interest. That’s smart.
Not smart: spending more than you can afford to pay for on your store card or credit card. Make sure that whatever you spend can be covered by your monthly budget, or within that 55-day period.
Draw up a monthly budget to keep yourself honest (and out of the red).
How To Create A Budget
Even if you’re not an accounting wiz, you should be OK with the 50/30/20 rule. Start by calculating your monthly income. That’s your salary/wages, plus any other side-hustle money, after taxes.
Now, break that number down into three portions:
- 50% goes to necessities
- 30% (maximum) goes to spoils and non-essentials
- 20% goes to savings and debt repayment
There are loads of other budgeting methods, but we like the simplicity of the 50/30/20 plan. If you follow its formula over the long term, you’ll have what you need, keep your debt in check, be able to indulge every once in a while, and have savings set aside for irregular or unexpected expenses.
Remember, though, that putting a household budget together should not be a once-off exercise. Review it regularly, tweaking and fine-tuning it to make sure it meets your changing financial needs. Your income won’t stay the same forever, and neither will your expenses. You’ll have to update your budget as you go, to make sure it’s still doing its job!
Adding Credit To The Equation
As you put your budget together, you’ll quickly notice that credit can’t help you budget after all. What it can do, though, is help you to stretch your budget – helping you to pay for spoils this month using next month’s budgeted money!
But be smart about it. Make sure that you pay what you owe within the interest-free period, and make sure that your credit doesn’t start eating into your disposable income, causing you to need more credit.
It’s all about affordability. Whether you use credit or not, you should never spend more than you can afford.
