Lessons from Prof Mthuli Ncube




Prof. Mthuli Ncube

On Thursday last week, Finance and Economic Development Minister Mthuli Ncube presented the 2021 Mid-Term Budget and Economic Review.

While this was at a national level, there are several lessons we can learn from a personal finance point of view, one of them being the fact that there is a need to review budgets and assess progress at regular intervals.

While at national level, there is only one mid-year review, in compliance with Section 7 (2) (a) of the Public Finance Management Act and Section 9 of the Public Finance Management (General) Regulations of 2019, at personal level you can have monthly, quarterly or just similar to what is done at national level depending on circumstances and preferences.

One would say the end of every quarter is an ideal time to review a budget and make adjustments so as to keep on track toward one’s most important financial goals.

To use one’s budget effectively, there is need to review and revise it at regular intervals and when there are changes in circumstances such as a salary increase, new income stream, birth of a new child, a child starting school, or now mostly learning online, or an increase or slowdown in inflation.

There are just too many reasons why a regular budget review is a must.

Whether one is on track to achieve their financial goals or need to make adjustments to meet those goals, it can only be decided by conducting a budget review.

Are you making as much as you anticipated? Did you reduce expenses that you aimed to reduce? Are you saving a portion of your income as planned?

Using up-to-date budgets enables one to be flexible and helps in managing cash flows.

It helps in identifying what needs to be achieved in the next budgeting period. Once you see where you stand concerning your budget, you’ll know what adjustments you may need to make for the next quarter.

These days a considerable number of people have multiple income streams which they also factor in their budgets.

However, not all expected income ends up in one’s bank account. There are delays in payments and even no payment for goods sold or services provided.

Some projects just fail to materialise and the expected income will not come.

This is where a budget review comes in. The purpose would be to compare one’s actual income with what was budgeted for.

Part of the budget review is to analyse reasons for any income shortfall and see if any remedial action can be taken.

Even when the actual income comes out higher than the budgeted, there is need to consider the reasons for this high level of income.

For example, whether there is a need to focus on the winning areas and less concentration on where one is struggling. Should one spend more time on what is working than concentrate on areas that are more or less a waste of time?

Still, on the income side, a budget review will help in comparing the timing of one’s income with budget projections and checking that they fit going forward.

Analysing these variations will help to set future budgets more accurately and also allow one to take action where needed.

The other part of the budget is the expenses side.

Obviously when one’s income is coming short and there is no immediate solution to generate more, then the expenditure side would have to be adjusted.

Some items will have to be dropped, unfortunately.

It won’t be an easy exercise because everything that would have gone into your budget is supposed to be important.

If it is not important then the money should have gone to savings and investments.

Apart from income coming short, there are times where one’s spending just shoot above the roof beyond one’s total income or one’s budgeted expenditure.

Some unexpected spending such as a relative (not one’s dependent) falling ill or dying and one has to contribute towards their expenses.

Maybe one has an unexpected child (yes these things happen) or just the cost of living ballooning beyond one’s budget.

These things happen and there is need for one to regularly review
their actual expenditure against budget.

This will help make some adjustments and also forecast future expenses with better reliability.

An expenditure review can be done by looking at how actual expenses differed from budget. Which expenses were in line with budget and which ones were off-budget? You then make the necessary adjustment so that you spend within your means. – Sunday Mail