With the world’s biggest financial crisis post the Great Depression entering average households that had nothing to do with it looming with job insecurity growing, asset prices falling, and the threat of a slowdown getting real, Hindustan Times cuts through the noise and puts together the citizen’s guide to managing money.
The first step for any plan is to make a budget. This helps you know your exact financial health — what is the total income coming into your household, what your big expenses are, how to prune them.
“Budgeting is the key to any planning and it gives an indicator of what you need to plan, how much you need to plan and what for you need to plan,” said Surya Bhatia, CFP, a Delhi-based financial planner. Family budgeting should be dealt in a manner similar to a company’s budgeting. The principles are similar.
For any business to run successful, the revenue has to be higher than expenditure to make a profit. Profits can further be invested into the business to help it grow bigger and stronger.
In a household, savings are the profits that need to be invested such that they help meet life’s goals. If savings are inadequate, individuals should look into the expense sheet and trim down on unnecessary expenses.
Budgeting is all about the attitude and discipline. For instance, smokers don’t realise that buying 12 cigarettes a day on a monthly salary of Rs 20,000 means smoking about 10 per cent of the monthly income away. Budgeting tells you whether your money is working for you or not. It helps you plan your cashflows and tells you where and how much has been saved to be deployed to meet the life goals.
“It is an index created by your own self for gazing your own performance,” said Bhatia.
A budget should however be flexible so that it can be modified going forward. For instance, if income increases, the extra money can be directed partly into savings and partly for spending.
Budgeting is a habit that planners feel can begin loosely. Later, as the habit is formed, it can be turned into a discipline that can turn your income into wealth.