Draw your budget for optimum resource allocation
IT’S AN age-old wisdom that tells you not to spend money you don’t have, but, sometimes, you find yourself spending more than what you earn. In hindsight, you realise that you actually spent that money on something that was not so necessary. For instance, you impulsively swiped your credit card last month to pay for the latest mobile handset or bought a luxury watch. If this is the case, you may need to establish a budget to help you keep track of how you spend your money and this would help you achieve your financial goals.
The objective is to distribute your resources optimally to avoid unnecessary expenses, at the same time ensuring that your entire financial objectives are achieved. Good deci sion-making is based on good information. Involve your family members when analysing your cash flow and writing your budget. It will avoid division or confusion among family members.
Although, it sounds so simple to understand, it is very difficult to implement it practically. People tend to overlook various factors while preparing a budget because they only take into account their primary income source and major expenses. Money spent to buy things, which are not necessary to achieve instant gratification, is often neglected. If not handled properly, these minor expenses could add up to a big percentage of your monthly expenses. Major expenses like house rent, insurance premiums and loan repayments remain the same, unless, there is a major economic upheaval.
Minor expenses if not taken care of, could cause a major dent on your budget. The ways to resolve this is to keep your expenses in check or increase your income level.
You should review your expenditures if they exceed budgeted amounts.
If minor expenses are creating a dent in payments of major expenses, a budget will show you the areas where spending can be reduced to ensure payments of major expenses. If your first priority is spending according to a budget, your financial goals can be achieved faster.
Process involved in framing a budget: Identify your cash flow: To develop your monthly budget, you first need to identify your all income and expenses. Make sure to add your all incomes like rental income, interest and dividend to your salary or business income. Also, when you identify expenses, don’t forget to add your discretionary ex penses like enter tainment, dining out, hobbies and birthday gifts, to name a few. In addition, wherev er possible, treat your goals as ex penses and con tribute toward them regularly.
each expense: Evaluate each expense: Every expense that you incur should be analysed properly. Discretionary expenses should be evaluated on the basis of necessity and if there are alternate options. If there are cheaper options available and if you can compromise on certain expenses taking into account long-term objectives, you should take advantage of them.
Set financial goals: Shortterm and long-term goals should be taken into account while drawing up a budget. Money, which is saved after adhering to a budget, can be utilised to achieve goals by proper investment. Achievement of financial goals could be your major concern and so this would also help you stick to a budget.
Write down your budget: As a general tendency, human beings think about a lot of things but actual implementation does not occur, unless, we write it down and take an analytical view of our decisions.
You have to write down a budget taking into account all cash flows and expenses. You should also have the temperament to follow your budget. You can simply write down your budget on a piece of paper or use Excel-based home budget templates available on the internet. Monitor the budget: Budget is not a one-time calculation. It has to be monitored on a regular basis to account for new expenses or increase in the original expenses due to inflation. Periodic evaluation is necessary and changes need to be made devoid of any emotions.
