Money Marketing Newsletter – Lessons for our budgets

Next Wednesday sees the presentation of the annual Budget by Finance Minister Pravin Gordhan. This is a very big occasion for SA inc and pages are devoted to it, opinions are expressed and written. The Budget is – in essence – our roadmap as a country for the year. So while next week will be devoted to the National Budget we felt it appropriate to take a few lessons into our own budgets.

Lessons for our budgets from the nation’s Budget

The Budget is one of the biggest occasions in the country – extensively followed. In coverage and opinion it may rank second only to announcements of various sporting teams and natural disasters. Each year South Africans are invited to submit their Budget tips on the National Treasury website. But there are many lessons we can take from the country’s Budget and put into practice in our own budgets. Budgets are massive occasions for the country and for businesses – they are that important and we need to make our own budgets equally important.  

1. Make your budget a big deal

The Budget is a big deal. Live coverage on numerous stations, lots of debates by a wide range of experts, beautifully dressed parliamentarians and other guests. It is presented as one of the more serious documents in one of the more entertaining manners. This is SA inc on show. Why not put this into practice in your budget?Financial planners will consistently refer to a budget as a basic tool of financial planning. Put as much stake in your budget as the country does. Present it to all those it affects, allow for debate, comment, make it an occasion. The Annual Budget is much more than a set of numbers – it is an expression of our future desires and plans. Too many of us look at a budget as boring, cumbersome and uninspiring. Present and past ministers have shown us that the Budget is anything but.

2. Your budget is not just numbers

A budget may be made up of numbers but those numbers are a reflection of what we do, have done and hope to achieve. If we have so much focus on the National Budget – we need to emulate it with our own budgets. The Budget reflects what we want and how we can get there. The Budget tries to balance needs and wants and hopes and dreams with resources. Each year the Budget looks for ways to find extra funds for necessary expenditure. The Budget is elegantly worded and contains some beautiful phrasing. As much care and preparation goes into the presentation as goes into the Budget itself. There is space for eloquence and gesture, humour and wit within the Budget. If your budget is about hopes and dreams – think of it in suitable terms.

3. If you can’t afford it say so

It would be great to have endless amounts of funds to allocate to crime fighting, road maintenance, education, healthcare – but the Budget is about doing what you can with what you have and keeping debt at acceptable and manageable levels. When the Budget goes into deficit it is in line with a plan and it is specified how that deficit is managed over the next few years. Each big allocation in a budget starts with small steps – the big plans take years to accomplish. In your budget take a similar view – if it’s not possible this year find a small step to take to make it easier for the following years. And if you cannot afford it say so. Countries and people in too much debt are neither pretty nor enviable.

4. Use the carrot and the stick

The Budget carries incentives and disincentives. Are these present in your Budget? What incentive have you given yourself to save? What incentives have you given yourself to spend where there is the greatest need?

5. Allocate for the future

The Budget looks quite a few years in advance – and much of the allocations are based on a better future. We sometimes have a tendency to place our budgets too much in the here and now. Your budget is a building block for what you want to achieve. Don’t lose the focus on daily expenses but make sure things like education, future healthcare and retirement funding are included. What you spend on education today should have benefits years into the future.

6. Review and audit

The Budget gets reviewed, revised, commented on, debated, and in October re-presented to Parliament and the nation. Give your Budget the same level of scrutiny from all the stakeholders.

7. Be loud and proud

While there will always be differing opinions on how we spent, how we should spend, who should get what, and what else can we do; amidst all the comments the sound management of SA’s finances is lauded. That we are able in a land of appalling unemployment and many other issues, and in a time of sovereign debt crises, to present Budgets as we do is a cause for much celebration. The Budget is loud and it is proud. Whatever your views on it (and the purpose here is just to take some lessons) – the Budget is not done quietly, surreptitiously and under the table. We need to be a lot more open about our budgets to conquer our financial fears and needs. Give your budget the importance and fanfare it deserves.Doing our own budgets needs to be as much an occasion as we experience next Wednesday.

A brief word on inflation

February focus in SA is on the opening of parliament, State of the Nation address and the Budget. Sometimes a bit too quietly the financial world moves on. Just last week oil went over the USD100 a barrel. The rand appears weaker. The inflation ahead signals look stronger.Just under a year ago at the Cannon Asset Management roadshow CIO Dr Adrian Saville was asked the question about inflation given the rather poor state of the world. He commented that inflation was coming – he couldn’t predict when – but it would reappear.

Assessing global conditions, Dr Prieur du Plessis, chairman of Plexus Asset Management and author of the Investment Postcards blog says: “Inflation will emerge and in some instances has already started to emerge under two distinct themes, namely high-growth emerging-market economies and low-growth developed-market economies.

“In the larger high-growth economies such as the BRIC countries, the concern about inflation is already having real policy-altering consequences on these markets. The textbook inflationary concern is apparent, where too much money is chasing too few goods.”“Policies of increasing interest rates or raising banks’ reserve requirements are being implemented in parts of the world where high GDP growth has been the order of the day,” says Du Plessis.

The inflation concern in developed-market economies is under a more subtle guise and seems to be further into the future than the imminent concerns facing emerging economies. “While GDP growth has not been that strong in these economies, and some are facing austerity measures, the actions and continued promises by the respective reserve banks will eventually have an inflationary effect,” predicts Du Plessis.

Make sure to take account of possible higher inflation in all your financial plans – be they a budget or an investment plan.

The opinion and comment in this newsletter is intended as opinion and comment only for information purposes only. Please consult a professional financial planner for all budgetary, investment and financial decisions.