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Family Budget and Indian Society |
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Personal Finance
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6 reasons why you need a budgetBudget wish lists, budget expectations, live telecast/webcast of budget speech, discussions and analysis on various TV channels/ newspapers/magazines, elation & disappointment, joy & distress etc. - it’s like a carnival.
But have we ever pondered over the need to prepare our own household budget. More often than not we tend to live from salary to salary, without seriously giving thought to either balancing our own budget or financial planning.
The question one may ask - why budget? The answer – B.U.D.G.E.T.
It is a Beacon Budget is the roadmap to our financial success and independence. Budget tells us where are we heading financially. Will it be a life of financial freedom? Or would we be always struggling for money? Would we be in debt or lead a debt-free life?
Living without a budget is akin to driving without any destination in mind. We would burn up a lot of petrol (a costly proposition) and still end up nowhere. Budget provides the necessary ‘purpose’ and ‘direction’ to our financial journey.
A budget can act as an early warning signal, which can help us to take corrective action and a any financial disaster.
Checks Unnecessary spending A budget shifts the power from money to you. You become the master and manage the money rather than money managing you.
On one hand the incomes are usually limited. But when it comes to spending, the options are almost unlimited. This is truer today with the boom in consumerism. Therefore, it becomes imperative that we manage our resources diligently to prevent any financial stress and meet our important expenses – food, clothing, shelter, education - comfortably.
Once we list down our expenses we can identify the areas of financial waste and take necessary steps to curtail needless expenses.
Helps manage Debt A budget warns us if we are living beyond our means. With easy availability of finance – by way of credit card, personal loans, EMI-based purchases etc. – we tend to overspend and end-up straining our finances, even before we realise. The result is debt-trap and the consequent tensions and trauma.
Budget helps us to prevent the debt traps. Suitably aligning our spending pattern can free up a lot of cash, which can be used to rationalise one’s debt and work towards becoming debt-free in due course of time.
We can then manage debt to our advantage, rather than compromise our future for a few moments of pleasure today.
Promotes Goal setting We all have certain basic needs. Apart from this we also have our dreams and aspirations. Be it a car, a house, children’s education & marriage, foreign trip etc., it all usually ends up on the question of money. A clear view of our financial position assists in defining our possibilities. It helps the family to prioritize and focus on important goals. The financial milestones get defined.
More importantly, it sets a direction for our saving and investment pattern. It helps in proper asset allocation.
Usually we earn, we spend and whatever remains we save. This strategy generally fails to build-up the desired wealth. Instead, we should first earmark a % of our income towards saving & investing. And then work out the expenses around the balance income. This discipline of forced savings is a must to curtail impulse buying.
Prepares for Emergencies Any emergency, e.g. an immediate need for medical attention, can be very traumatic. If on top of this we have no idea of how to arrange for finance at a short notice, then we are only compounding the problem.
If we are in control of our finances, we can deal with any crisis situation more effectively.
While making a budget we should plan to set aside a small amount regularly and build up an ‘emergency corpus’. This will come in quite handy. And this amount should be kept in a short-term investment option like bank FD or money-market MF so that it is easily accessible.
And in case any money from your ‘emergency corpus’ has been used, replenishing it should be the top priority.
Taste financial success And last but not the least, a budget helps us to stop worrying and start ‘enjoying’ our money.
As we keep achieving our desired goals as planned, there is a sense of satisfaction, a sense of achievement. When we are out for a movie/dinner or on a vacation, we don’t have any unpaid bills haunting us. The taste of this financial success is sweet and long lasting than any impulse purchase.
And before one concludes, a warning – preparing a budget is relatively the easier part of the job. The difficult part is adhering to it – month after month, year after year. It requires time and commitment. One has to be patient and determined, or else it will end up like the umpteen new-year resolutions – only promises and no concrete result
Ten easy steps to cut down costs without feeling the pinch
Analysis of future goals is essential so that we can workout a judicious balance of current needs/expenses vis a vis the future needs. Analysis of cash flow will not only throw a clear picture of our expenditure pattern, it will also provide a clear idea of whether all the presumed income had been earned or is there any difference in our expected income to the actual income. The basics for cutting costs: We need to work out a comprehensive account of all the expenses we incur and understand the nature of each and every expenditure. Generally, all the expenses one incurs can be classified into-
The third kind of expenses should be totally prevented and the second one to be rated on the basis of both, the need and for the value of money. For basic needs, we do not have any choice but for any thing else, think before you do. Use your head rather than heart. The actual actions, which will save costs: 1) Prevent all impulsive purchases The biggest wasteful purchase pattern is caused by the impulsive purchases, which are not projected and expected. It is also true that a majority of impulsive purchases at a later stage are regretted. In fact, the best advice here is try to prevent any visits to malls or places like that which thrive on making you and me buy what they show rather than what we want. 2) Replace credit card with debit card Credit Card is a wild instrument, which induces one to buy/spend more than what he or she can afford or need. Replacing it with a debit card, which serves the same purpose with only as much money you have to spend as the best option. 3) Car expenses
4) Car expenses II When you buy a car on a loan, be careful about the accessories. Not only we tend to buy unnecessary/expensive accessories because there are no immediate cash outflows from our hand, we tend to forget the interest outflow on the additional loan. 5) Car expenses III A very good measure to reduce car expenses is to use either company provided vehicles for office going or creating a car pool with either colleagues or neighbours. 6) Never visit a sale Never visit a sale unless and until you are sure of both – you need those goods and the sale is a genuine one. 7) Housing loan payouts When you evaluate the cash flows of most of the people in the age group of 30 - 40, majority of the outflow is accounted for housing loan repayment and car loan repayment. Buying a house for living is always necessary but buying one which is bigger than need entails two important outflows – payment of larger EMIs again loosing in the interest outflow and further a regular high cost incurrence towards maintenance and taxes. 8) Juggle with various loan options Be very clear, between home loan and car loan, home loan is cheaper and provides also additional tax benefits. Between credit card loans and personal loans, personal loans are cheap, most of the times. Hence, if you have to compulsorily take a loan, end up taking the one, which is cheaper to you. 9) Mobile phone usage
10) Prevent expensive gadgets The best way is to look at utility rather than the show. (Of course, I know I am in the minority in this claim and people generally get carried away so much in these gadgets, they do not even realize what they are doing) I tried to think differently instead of the usual ones, which is of macro nature for cost cutting. I would like to end with two of the statements passed on to us for generations – look and buy what you need rather than what you want and other, moving into the next ladder of standard of living is very easy but maintaining that standard is very difficult. If you adopt this in your life, you will never have any regrets. 18 ways to cut costs THE basic needs of man are food, clothing, shelter and entertainment. Today, most of us have graduated from needs to luxuries. When the newspaper headlines were screaming inflation at 11.9 per cent, it became a topic of worry. Today, the challenges are not just high standard of living, high commodity prices, it's job loss too. How do you deal with meeting your basic requirements with less means to buy them? While eating just one meal a day is good for Yogis and is a
nice way to cut down costs, that is not what I'm suggesting. Instead, Try
something simpler. 4. Shop on a full stomach 6. Do you really need bottled water?
7. Shop sans the kids 9. Use store reward cards 11. Choose unbranded goods 13. Compare prices and stores 15. Shop less frequently 17. Check your bill 18. Buy leather goods in monsoon and umbrellas in winter! |
