Budgeting

Budgeting

The act of managing the income and it’s expenditure is termed as Budgeting. Suppose that Jack earns a salary of ten thousand rupees a month and he has to spend it on his family accommodation, food, cloths, toys for children etc. This management of the fixed salary and spending on various needs and wants is budgeting. Income is fixed and needs and desires are unlimited.

Jack  probably would be thinking that his children and his wife would be waiting to go to shopping.Had they thought about budgeting, he would not have to read this boring article.

My personal bias: I don’t like budgeting. It is simply no fun work to do. But it is super helpful.

So What Budgeting Is:

Hey! I already told you. The first line defines budgeting. Pay attention!

Budgeting is the payment of fixed or planned expenditure as well as as unplanned expenditure from the fixed income that you receive as your salary or profit from business . Fixed expenditure includes recurring expenses that you have to pay every month. It generally includes rent, food and grocery items , transportation, cloths (for each member generally).And then , there are some unplanned expenditures like sudden medical expenses, a wedding invitation of a colleague or an unplanned trip. These have to be managed.

What! you don’t want to go to the wedding ? That you have to manage. I simply can’t find a way out of it. See! here also you have to manage things . Management is important where there is limitation of resources. For any normal human being, there is and there always will be limitation of resources. Your salary or your profit from business will always be defined. It means it is something which will never be unlimited for most of us. So, you need to prioritize your most important expense and the expense which can be postponed for some times needs to be postponed. As you can only buy based on what you earn, there will be limitation to spending. So, budgeting is a good tool. Your spending can be prioritized. You can track all your expenses.

Who Can Make A Budget?

Budgeting is for everyone. You might have heard about the national budget , which our finance ministry prepares every year. The national budget is for our country and it decides upon the areas where our most of the focus is going to be.It also decides ,which sector gets what share of budget.It is very important to all sectors and most people keep an eye on it. Many a times, there are taxes applied in the budget and items get either costly or cheap. Also, every company has its own budget. There also every department has its specified spending limit. The company has to function on the specified amount assigned to it.

Likewise, every household can have its own budget. There, the salary can be the total amount available. You prioritize your spending according to it. Budgeting is for everyone.

What Can You Achieve With Budgeting?

The foremost thing you can achieve from budgeting is that you can track your spending. What you have spent on which thing , can be easily traced. Was the money spent on a need or a want? This also can be easily derived from budgeting. Budgeting is a great tool to look for unwanted expenses.

If we can identify a wasteful expense, only then can we minimize that type of expense. So, it helps in identification of what is important and what you can just avoid to spend money on.

How Can You Start Budgeting?

You don’t require any sophisticated tool or any specific knowledge or skill set in order to start budgeting. If you have access to a computer or a cell phone, you can easily create a spreadsheet. There itself you can start budgeting. Also, there are many budgeting apps available for free and paid versions. You can start with anyone of them. Try on and see what you like and then adjust accordingly.

On the other hand, if you like to keep it simple, you can do it with a pen and paper or a pocket diary. Create small tables and jot down what you purchase and deduct with what you have. You have a small budget sheet in your pocket.

What To Include In A Budget?

You can start with a few columns to make your budget. The total amount available for the month, the expenses on particular things like food, rent etc, then what goes for savings and what is left. Then one more column for what you actually spent and then a balancing of the budget. What you thought of spending and what was spent. Then the amount saved.

Here is a sample image of a simple budget sheet available for your reference below:

budgeting sample
budgeting sample

 

You Can Start With A Target In Mind:

So you don’t like to budget. That is OK. Most people don’t like it.But you can have a goal in mind. Suppose, that you earn a salary of thirty thousand rupees only. You can have a goal of spending rupees twenty three thousand only. So, you can adjust your lifestyle around that amount.

Save First:

Budgeting is difficult because it is very boring at times. People like to spend money as per their will in order to satisfy themselves. The pleasure satisfaction is important. So, naturally it is difficult to stop yourself from buying the next McDonald’s burger even if your budget has shot past your budget limit. Most people make a budget in order to save and limit their spending habit.

What if you can save a reasonable or targeted amount first and then spend. It is a possibility. Also, it is less stressful. You can have a separate account for this purpose and transfer the agreed upon amount in that account and the rest is yours to spend. But, tracking of where money went, will become difficult with this option. Still, for someone who wants to avoid budgeting (even after all the great benefits associated with budgeting), it is a great way of moving forward. Mr David Chilton in his famous book ” The Wealthy Barber” mentions about it.

Take A Limit From Your Bank:

And if you don’t want to do all this, you better take a limit from a bank. Spend all that is required from that limit only and repay it in full amount every month.You can later match it with the statement of account. Of course, do understand that if you don’t pay it, this can become a curse for your financial life. It is actually very confusing, but if done right, it will help you in limiting your expenses. This has been mentioned in the book ” The Wealthy Barber Returns”

Always Track Your Budget:

The most beautiful aspect of budgeting is that you can always relate to every penny you spend and where you spent it. It gives you enough data in order to optimize your spending as per your set limit. You can spot your weaknesses and where your budgeting doesn’t work. Where, you need to allocate more and where you have allocated too much of amount.

I personally never liked budgeting. But, in a few months when I have made a budget and tracked it, I could see where I needed to optimize and where I was doing good. Also, it increased my savings rate and gave me confidence in relation to money matters.  I knew, that my budget will support me for certain amount of time and I don’t have to bother in the month end for some help.

Budgeting is a great habit. Give it a try!

 

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