Rajeev (29) and Shweta (26) go through a harrowing time during the last 10 days of the month. Their bank balances hover near the minimum balance forcing them to live on credit for the rest of the month. Both are earning well and do not have kids, yet their monthly commitments towards home and car loan and their lavish spending habits seem to be taking a toll on their overall finances.
Many urban households where there is no dearth of good income, often face similar situations today, as high expenses lead to depleted savings.
When Rajeev was growing up, his father was the only earning member in a family of five and his mother managed the entire family’s expenses from the fixed amount handed over to her by his father. While inflation and rising prices do have their share in the increased expenses, the fact remains that today, most luxuries have become necessities and odd working hours ensure that we end up spending more than we should in normal circumstances.
| SAMPLE BUDGET (Rs ) | ||
| Items | Monthly | Yearly |
| Income | ||
| Salary | 80,000 | 9,60,000 |
| Rental income | 8,000 | 96,000 |
| Total | 88,000 | 10,56,000 |
| Expenses | ||
| Home loan EMI | 15,500.00 | 1,86,000 |
| Car loan EMI | 5,400 | 64,800 |
| Insurance premium | 2,500 | 30,000 |
| Total | 23,400 | 2,80,800 |
| Variable | ||
| Food & Groceries | 12,000 | 1,44,000 |
| Utilities | 5,000 | 60,000 |
| Conveyance | 6,000 | 72,000 |
| Housemaid | 4,000 | 48,000 |
| Entertainment | 5,000 | 60,000 |
| Medical | 2,000 | 24,000 |
| Total | 34,000 | 4,08,000 |
| Surplus / Deficit | 30,600 | 3,67,200 |
What’s the way out
Sir Benjamin Franklin had said, “A penny saved is a penny earned”. Unless you are serious of the fact that there is an urgent need to start saving something from your monthly income, nothing can be achieved.
For this, first try to figure out how much is your total net income. That is the amount you receive in your account every month after the mandatory deductions like income tax, gratuity, and provident fund. For the salaried it will be very easy to figure out based on your pay-slip or your salary credit.
Then make a list of all your fixed and variable expenses. All loan repayments, insurance payments, children’s school fees and so on are fixed expenses that have to be mandatorily paid on a fixed date every month. Other expenses such as food and grocery, utilities like electricity bill, gas and mobile bills, and others are variable expenses, since the spending on them varies each month. These including your entertainment, dining out, gifting and so on. After you have listed out all your expenses, subtract your total expenses from your monthly income and see if there is a surplus or deficit.
Initially, it will take a long time to list down your expenses and you may go off the mark. Therefore, it is suggested that you maintain a small diary in which you can jot down your daily expenses. The same can be then copied to an excel sheet every day. Either the husband or wife should take charge of this activity or else it is doomed to fail. Doing this exercise over a few months will enable you to correctly estimate your expenses and allocate funds accordingly.
Once you start off with the monthly budget, don’t forget to add your annual expenditures such as vacation, festival spending and so on. Regularly monitor your bank account and try to save any additional amount over and above your contingency fund requirements. At times good bank balances can be tempting enough to go on a shopping spree.
Save first and then spend
In order to inculcate discipline in your spending habits, another better way is to estimate your expenses and keep only that much amount in your account, while saving the rest at the beginning of the month itself. Consult your advisor and start systematic investment plans so that a fixed amount of savings gets invested every month.
Initially you can begin with a smaller amount and then scale it up over a few months. Once you are conscious of the fact that limited resources are now available at your disposal after the fixed savings, you will make a genuine effort to control unwanted expenses.
Budgeting is not among the most exiting activities, but once it becomes a habit, this activity will bring immense benefits in the form of good savings and investments which can then be channelized for your various financial goals. Like Rajeev, we can take inspiration from our mothers who did a commendable job in budgeting and managing our family’s expenses.
Remember there is no gain without some pain. So take out some time and make budgeting an exciting and rewarding activity for your family.
Chief Planner, Proficient Financial Planners
