How understanding your income & expenses leads to a better life

Mar 31, 2017

Welcome to our ONE WEEK CELEBRATION since we released the MyFincheck Finance Tool! Last week Friday was a HUGE milestone for every user and team member of Fincheck!

We've seen a lot of people sign up this week to enjoy the benefit of a tool that can help them make better finance decisions!

Why does that matter? Well, because those decisions are the foundation for a better financial future for each of us.

In this post, we're talking about FEATURE 3 listed below. It's not really a feature as much as we would like to show you the importance of understanding how your income, expense & expense ratio impacts your life. We'll start linking back to each article (as we post it) in the list below so you can easily navigate to all the features:

  1. Fincheck releases MyFincheck Finance Tool
  2. FEATURE 1 Bank Level Security Assurance & Notifications
  3. FEATURE 2 Your Personal Financial Dashboard Overview
  4. FEATURE 3 Understanding your income, expense & expense ratio (Current post)
  5. FEATURE 4 See your Cash Flow with the Transactions Window
  6. FEATURE 5 Save towards a better financial future with your own Savings Window
  7. FEATURE 6 Your Credit Window will help you keep track of credit card spending
  8. FEATURE 7 Take control of debt with your FREE Credit Score & Loan Account Window

The importance of your income, expenses & expense ratio

Before we define each of these finance topics, we first need to get on the same page when it comes to their importance.

Why?

Well, because these are 3 simple financial truths that will help you have more money at the end of your month - without needing to become a financial guru!

Your income, expenses & expense ratio are very simple numbers that will tell you how well you are spending your money. It's either going to be good, or it's going to be bad. Let's look at what each of these mean...

What is your Income?

Your income will reflect all the money that came into your account for the month. This includes salaries, wages, dividends, and other forms of cash flow that came into your account.

Income tip: Try and look for ways to diversify your income sources. Either start a small business on the side or do some weekend work.

What are your Expenses?

Your expenses will equal your total expenses for the month. This includes all money that you paid towards other accounts, savings, investments, retailers and other lifestyle purchases. Note that savings and investments will still reflect as money that went out of your account i.e. being an expense, but will reflect as a positive balance in your savings and investments.

Expenses tip: Schedule payments, savings and debt to go off your account before you can spend the money. Then only give attention to lifestyle costs - if you need to "justify" a lifestyle cost, you need to consider justifying weekend work. This is because monthly payments, savings and debt responsibilities shouldn't be more than your income!

What is your Expense Ratio?

Your expense ratio will help you see how much of your money you are spending. Your ratio is shown as a percentage and this percentage reflects how much of your 100% income is categorised as an expense. For example, if your income was R10,000 and you have spent R8,000 - your Expense Ratio will be 80%

Note: Unlike schools or grades percentages, the lower your expense ratio is, the better!

So what should my income, expenses & expense ratio be?

Your income will obviously be unique to the opportunities you have and create in your life. The most important part of that income is that you don't spend it all!

You need to get into the habit of spending less than you're earning. This means your "expenses" on your financial tool will ideally be about 25% less than your income.

Quite the opposite as in school, the lower percentage your expense ratio is, the better you are at spending less money than you are earning.

Does this mean you need to live a terrible life?

Not at all! It simply means that whether you're earning R5,000 a month or R50,000 - you can save more money than you realise!

This comes down to 3 Golden Rules:

  1. Spend less money than you're earning
  2. Or, stop spending more than you're earning :)
  3. Don't increase your spending when your income increases

If you need any help with understanding more about this, you can contact the Fincheck team. We'll be happy to refer you to some resources to help you understand more about this.

Let's cheers to your better financial future!

We're so excited and happy to have you part of this awesome release! If you had fun reading this post, and would like to share it with a friend, please send them the link and encourage them to sign up.

If you haven't signed up for MyFincheck, you can do it here.

Remember to sign-up for post updates below - we'll keep you posted!

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Fincheck is a financial comparisons website that organises information to assist the borrower in making their best financial decision.

Fincheck gathers information from numerous banking partners and presents it to the borrower in a simple, understandable way. Lenders benefit from an additional market place and extensive customer reach. Loan amounts vary from lender to lender. Fees, interest rates, loan amounts and credit scores influence the repayment terms. Lenders require personal details to control their risk and assist the government to combat theft, money laundering, terrorism. Fincheck does not endorse any particular product or company. We are an independent company. The information shown and provided is an opinion, based on numbers and must not be seen as advice or consultation.