Living beyond your means is a common phenomenon nowadays. As plastic money takes over cash, the difference between a 45-day interest free period (offered by credit card companies) is getting confused with the real cash that is spent through your debit card. Ultimately, the bills start coming in and then one finds oneself in a debt-trap.
Savings is a habit that you should start inculcating now. Start rationing the money in hand to include all your obligations towards expenses and loan repayments. Once that is out of the way, if you find that you have money for nothing else, then it is time to do some serious thinking.
How to start? There are three basic things to take care of: expenses, debt and savings for goals. The idea is to control your purchases and wasteful expenses. Thereafter, financial goals like retirement, children's future, house, car and others need to be drawn up. Moreover, budgeting for investments is important as well. Here are a few tips to start and maintain a practically successful budget.
Salary slip: Take a serious look at your salary slip. That will give you a fair idea about how much money is coming to you monthly, the bills that will be reimbursed every month or quarter and the lumpsum that will come, once a year or twice a year. Once you know this, you know how to time that occasional splurge.
List expenses: Sit down with your family and make a list of all the expenses and investments you are making on a monthly basis. Then take a call on what needs to be pruned. Get a budget worksheet or calculator and input the fields you think are relevant for you and delete the ones that aren't. Also, make it as comprehensive as possible. Take the responsibility to maintain it.
Chopping time: This would normally include lifestyle expenses. The latest mobile sounds great but do you need it? Again, eating out is a very big expense and can be cut down. Energy bills can also be saved through car pools and switching off lights and fans when you don't need them.
Shop in bulk: With the entry of large malls, shopping in bulk has become rather profitable, as there are good discounts on maximum retail price and for large billing amounts.
Daily expenses: Note down daily cash expenses, or else you will lose track of them. Also, your expense management will become tighter, if you are able to manage it daily or at least weekly.
Try to create an achievable budget under every expense head. Impute five per cent more under heads where your expenses are not under your control. And after all that, if you have a surplus income over expenses, you are well budgeted. However, if there is a deficit, it means you are spending more than you can afford and need change your spending habits and revisit your expenditure heads to make further cuts.
Maintain the budget: Big task. If due to emergencies, you have been off-budget in a month, try to get back on track as soon as possible; otherwise the whole process could get derailed, if you keep spending more than budgeted every month. Try to create a contingency fund to take care of such emergencies.
Goal driven: A budget is not just meant for tracking expenses. You should also be saving enough for various goals like retirement, house, car, children's future, etc or for getting out of debt. The budget should deliver a surplus after all expenses and adequate investments or repayments towards these goals have been met.
To make your job easier, use a personal finance software like Microsoft Money. Most importantly, what you require is steady determination and a positive habit of correctly inputting and tracking your expenses and investments. It's not easy, but is surely rewarding.
The writer is director Touchstone Wealth Planners.
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