What a South African household budget looks like

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I recently found an article that categorises you based on your income. According to this, I form part of the middle-class. I decided to investigate what the middle class South African’s household budget looks like. Then to compare my budget over the last 3 months to each item. This will help me identify areas where I am over- and under-spending.

Budget for transport

The biggest expense in the South African middle-class household budget is transport, at 13.6% of their income.  On average, we spend R4 000 per month on fuel (thank you insane fuel prices) and R1 000 on maintenance. Granted, we had to service both our cars in January (R9 000) and we had to overhaul one of the car’s turbo in June (R14 300) which drove up the yearly average significantly. On the flip side, however, the first car is paid off and we bought the second car cash. As a result, we have no monthly premiums.

In total, 7% of our household budget goes to transport. This is below the national average of 13.6%. I thought that the fact that we do not have monthly repayments would put us way below the average. However, we drive long distances for work, which I assume is more than the national average. Also, most middle-class South Africans drive cars on service plans, which reduces the maintenance cost. Ultimately, transport is not a concern for us since the costs are still reasonable. Well, until we have kids and will need to replace one of the cars with something bigger.

For interest’s sake, the rich spend 30.1% of their salary on transport and fuel. Let me put that into perspective for you. The minimum income that classifies you as rich, is R2.36 million. So, the wealthy in South Africa spend R710 000 per year on transport. Let that sink in. This just goes to show that vehicles are the way South Africans show that they are wealthy.

Budget for insurance

Insurance is another big expense for the middle-class. This is a big expense because it finds you. We are bombarded with marketing calls and give into the fear of the unknown. The typical South African spends 12.9% of their salary on insurance.

For us, this figure is 3.8% and includes car insurance, life insurance to cover the bonds on our properties, disability insurance, home content insurance and income protection. The monthly car insurance is a bit steep at R1 750. This is because the large engines put them in the performance car section. This is well below the national average and is not one of our main concerns. I’m also in the process of moving to Discovery Insure that will reduce this cost to about 3% of our monthly expenses.

Budget for health and medical

It surprised me how much South Africa is spending on medical aid and medical costs. The typical medical cost for the middle-class South African is 14.7% of their income. This is because of rising medical aid costs and it shows that the middle class is prioritizing their health. 

The average medical aid spend for the South African poor is 0.1%. Translated, that means they have no medical aid and is dependent on a sub-standard public health system. It also explains why the government is planning to implement a state medical aid. How effective this will be, remains to be seen.

For us, medical costs account for 8.6% of our household budget. We only have hospital plans, which are significantly cheaper than medical aid plans that include savings. This allows us to first claim the medical aid costs and secondly the additional medical expenditure back from SARS. This is not possible if you have day-to-day benefits in your medical aid plan.

The regulation for this has changed this year and you will need to have massive additional medical expenses before you will be able to get a tax break. I thought that we would be above the national average here since we regularly have medical expenses and my wife recently went for ankle surgery. However, compared to the national average our medical expenses are low. I assume that this will also increase once we have kids.

Household budget for groceries and dining

For the middle-class, food represents 11.4% of their monthly expenses. Interestingly, for low-income households, this represents 35.9% of their expenses. This goes to show how much the poor are affected by changes in food prices. We spend about 8.9% of our income on groceries and dining. However, when I travel for work, my food is subsidized. Our real monthly food cost will be much closer to the national average.

Budget for entertainment

The middle-class household budget for entertainment is 8.3% of their income. This is a vague category to analyse. It will include things like going to a cinema, hosting a get-together and who knows what else. We include our travel costs in this category as well, which increases it significantly. Presently we are at 12.3%, which should come down if you analyse the long term average.

In the last three months, we went to the Drakensberg (about R5000 for the 4 days) and we paid for an Egypt vacation in December (about R22 000 for 9 days). We are overspending on travel, but to me, it is important to see the world and experience other cultures. It is, however, something I can monitor closer to ensure that the costs stay reasonable.

Budget for home expenses

The middle-class spend 10.9% of their household budget on housing, water, electricity, maintenance and furniture. This is where we are seriously overspending. Our living expenses account for 18.2% of our budget. This is because we made the classic mistake of buying a home for future us, and not present us. This left us with two options, selling our home or paying like madmen to reduce the outstanding amount and associated mortgage.

We love the place and opted for the latter option, although it is by no stretch of the imagination the best option. The additional payments we have made in the last year has reduced the mortgage by R3 500. The motivation is that when your mortgage is systematically reduced, your savings rate increases and the repayment process is accelerated. By my calculations, we have about 4 years of payments left. After this, we will be living rent-free for the rest of our lives.

Budget for savings

This is arguably the most important line item in a household budget. How much is left at the end of the month? The South African savings rate is 13.8% and at this point we’re at 23.7%, trying to increase it even more. I did a blog post on how your savings rate influences your retirement horizon if you want to read more about this topic. Make sure that you budget for saving. Make it ambitious and make it your first purchase every month. The comparison of all the figures can be seen in the figure below.

Summary of household budget

It is evident that my problem spending areas are entertainment and housing. I am content with spending extra to see the world. After all, we must live for the present while planning for the future. We’re also actively working on our excessive housing cost by paying extra into our bond. Feel free to compare your cost to the national average. This will give you a sense of where your money is going and where you can save.

Be safe out there,

Hendrik Brand

Quote of the week

“It's clearly a budget. It's got a lot of numbers in it ” – Goerge W. Bush Click To Tweet

End note

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