Why do you need a budget? If you are someone with limited income and financial assets and don’t have a bottomless pit of money or tree where the mint paper grows, you need a budget. Your parents can bail you out for a while, but beyond your early twenties, it is not okay to keep going back to them when you run out of money at the end of the month.
If budgeting sounds boring and something your grandmother indulged in, then you must also appreciate that your grandparents got by on very little income, brought up more than a handful of children on that and yet never experienced mental stress or ran out of money. It’s because of good budgeting and living within one’s means.
It may seem like this is not an option and taking risks to increase your income with investments in new generation assets like crypto currencies. This is also an option but not without its pitfalls. You can make a 100% investing in crypto currencies and digital assets or lose everything in a day (eg TITAN).
Budgeting is the activity that can help you tie it all together. You needn’t save to a point of being frugal and it sets you up well so you can take calculated risks rather than investing carelessly chasing return.
What is it?
The term budgeting literally means to mark out what you will spend.
In other words, budgets will help you prioritise and put into perspective what you want your money to do.
Here is an example. Month after month, I was overshooting my grocery budget. To figure out the reason, I started tracking the expenses and broke it down into these columns, fruits and vegs, staples, grains and pulses, packaged and processed. Sure enough the overdrawing came from the packaged and processed column. I dug deeper into the category of products that I was buying. I realized that not only was there needless stocking up of imported sauces and spreads but also, a lot of these things got bought, opened and used once, then remained unused till expiry, at which point they usually got thrown out into the trash.
Wasteful, to say the least.
Cutting out this needless indulgence meant that I could save more without changing anything in our daily diet and menu. The saving could be used towards eating out with the family once a week.
So, you see budgeting is not about being frugal, it’s about being mindful about what you are spending on, understanding the value you derive from the things to buy and then spending mostly only on those things that matter to you.
A perfect budget?
Can there be such a thing as a perfect budget? If you were to think about it, ideally a perfect budget should help you save and spend.
Save, so that you can invest for future wealth creation and spend, but on the things that bring value to your life. Here are some tips to help you build that perfect budget.
1. Be honest
Don’t try to build a budget around the expectation of others. If your friend carries colour coordinated handbags, matching her shoes, you don’t need to do it too, just to keep up with her. Spend on things that make you happy, rather than collecting junk that makes you feel unworthy. Be honest not just about what you need, but also about your family’s needs. Do you need all the different pairs of jeans you have accumulated; do you even wear all of them? Do your children need all the toys and board games you bought them? Do they really need all the superhero outfits and masks or unicorn miniatures in all the colours? These things look cute, but really add little value to your or your family’s life.
2. Be thorough
Some expenses like utilities and groceries are upfront, first recall when you want to build a budget. While you must have columns on these, don’t forget the columns on other less jarring expenses like subscriptions (often forgotten), tips (often impulsive) and eating out (often thought of as a budget-less indulgence).
3. Monitor and be regular
Don’t skip a month. Fill in your budget sheets every month. Fix a date by when you must complete the monthly budget and then just get it done each month. Also, you must monitor your excess spending versus the budget at the end of the month to know if they are one-off or recurring. Despite the budget, you will have months in which the spending is unexpectedly high, it could be because of family get-togethers, birthday celebrations or just some impulsive shopping.
Knowing where the excess spending is coming from is important if you want to change the outcome.
Having a tight budget will help you generate surplus savings at the end of the month. Saving Rs 1000 or Rs 5000 on one item may not seem like a lot, but when you start saving across columns, you will realise that it all adds up to a lot.
These can then be used towards investments and ventures which have the necessary risks to grow your wealth and generate profits. Without an honest, regular budget, you are likely to overspend practically every month. Overspending is fine every now and then, but doing it persistently will only make you lose precious time which you could have utilized to put your money to some good hard work.
Just try it out to begin with. Build a monthly budget with simple spending category columns in excel and monitor it for 2-4 months. Begin small but with commitment and the right intent. Set aside one day at the start of the week with at least an hour for this activity. That’s all it requires, an hour a week, four hours a month.
Some budgeting tools that can help you:
1. Mobile Apps
There are many mobile apps both on iOS and Android platforms which are meant to help you budget.
- Apple Wallet
These are a few popular ones. They all have features that will help you record and monitor expenses. However, you may need to link your messages and bank details. This is done so that the tracking of expenses can be automated to a certain degree. If you are concerned about your privacy and security, then it’s best to leave these and work with the tools mentioned below.
2. MS Excel
This is my personal choice for budgeting. It lets you create tables, automate calculations and create pivot tables which can help you analyse your budget. However, using Excel can be a daunting task. Setting up your excel sheet is a one-time heavy job, post which you just have to spend 10 minutes a day. If excel is not your cup of tea then the option below is the best for you.
3. Old fashioned diary
Get a budget diary. Ideally one with calendarized pages will work best for you. You can arrange your diary on the basis of daily expenses. Alternatively, you can get a non-calendarized diary and divide it into sections according to the type of expense. Spend some time looking for an attractive and well-made diary which you will like to pick up every day.
At the end of every day, take ten minutes to update your budget sheet no matter what the platform, soon clarity will emerge!