Budgeting - A word hated by so many, but those who love it will reap its rewards. Especially those creating a Budget for a Loan Application.
The word restraint gets a bad rap as well. Just think about restraining order – that never sounds positive (unless you’re the person applying for one). It does sound like a nifty idea though. Imagine if it could keep bad credit away from you. Alas it can’t. For now you’ll have to use a financial budget to manage those loans and expenses.
To restrain something is to control it. Control is a vital essential to exercise good financial management. There is, of course, external factors in the economy that will have an influence on your income and expenses. Those factors include the repo rate – which is established by the South African Reserve Bank – that you cannot, for instance, control. Rather focus on controlling what is within your own sphere of influence and learn to adapt to whatever you can’t control. You have perfect control on setting up a budget for a loan application, so make sure you focus on it!
Before we can start drawing up a budget we need to assess how your income arrives. You either get paid with a fixed monthly salary or you receive irregular amounts of payment over differing periods in a year.
A financial budget for a fixed consistent income.
It’s real simple to budget in this format. You have a monthly income to repay a monthly loan instalment. Break up your expenses into different categories like rent, food, loan instalment, petrol, entertainment etc. Then allocate money to the different categories based on how important they are to you. Check your expendable income and make sure it can budget for a loan application consistently!
A budget for irregular income.
This is tricky. This type of budgeting is useful for people that get paid by the hour. You have to establish an average income that you want to achieve within a month. When you have decided on an estimated amount you need to work to achieve that level of income. Then you also need to categorize your expenses into loan instalment, rent, food, petrol etc. It is important that you now need to establish a ranking of importance to these categories. Because of the fact that you can’t get your monthly income in a lump sum, you need to allocate money to the different categories as it becomes available. It is important that you pay these expenses as it is necessary (not according to how you feel). You don’t want to spend too much on entertainment in week 2 to find that in week 4 of the month you don’t have enough to pay your loan instalment.
You should have a copy of the loan agreement - which means there is no reason you cannot budget for a loan application. Ask your credit provider to point out the monthly costs of your loan so you can manage your expenses.
We highly recommend that you pay loan instalments on time to avoid bad debt AND ALSO - SAVE SOME MONEY. Harness the power of compound interest. Make an extra expense that you use to invest money. Small amounts consistently invested will show significant growth over time because of the power of compound interest.
Restrain that spending habits of yours and channel your money to the expenses that will help you to a better standard of living! Old Mutual has a great financial programme called the On The Money which can help you budget better. Cheers to budgets that save money!