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Did you know?

Did you know?
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First Published: Tue, Mar 01 2011. 09 01 PM IST
Updated: Tue, Mar 01 2011. 09 01 PM IST
Newspapers are full of stories on the Union Budget. And like countries, individuals too need a budget to have a prudent financial life. If the finance minister has given you enough reasons to seriously start thinking about having a household budget, here are five quick steps to help you do it.
Step 1: Know where you stand
The first step in the budgeting process is fairly simple. Know your monthly income. In fact if your spouse is also working or generating any kind of income, take that into account. Remember to add refunds, bonuses, rent, interest and capital gains.
Step 2: Know your spending
Not an easy one, but must be done. There are two ways to do this. First, you can either keep a track of every rupee you spend for a month or two. This can be a bit challenging for you, if you’ve never done so before. Second way is to divide your expenses into fixed and variable expenses. For instance, fixed expense would be the home loan equated monthly instalment you pay, while variable expense would be your monthly mobile bill. Under variable type of expense, too, there are two types, the variable expense with is mandatory —those, you cannot live without such as groceries—while the other which is a voluntary expense (weekend movies at multiplex).
Step 3 : Analyse and act
With this information in place, analyse the data and see where you can cut down your expenses if you feel you are spending too much. Cut some expenses from each category or take a focused approach and deal with one category for a few months and move on to others later. For instance, first, begin to focus and cut expenses in the variable category—voluntary expense category. Which means, instead of going to branded coffee shop five days a week, go there twice a week. Once you gain control on that category, you can shift to another category.
Step 4: Save, repay debt and invest
Once you’ve started saving under various categories, ensure that you set aside money as an emergency fund; i.e three to six months of expenses. Try to prepay unsecured expensive debts such as a credit card debt or a car loan which don’t even offer you a tax benefit. Remember at any point of time, at least 10% of your salary should be saved beyond the provident fund cuts and the deduction linked investments.
Step 5: Evaluate and alter
Budgeting is not an one-time event. Every time your financial situation alters, your budgeting needs also change. For instance, after an annual increment, your income changes and hence, your budget needs to be altered accordingly. Now that you know how to make a budget, making your household budget and linking it to the Union budget will work as a great nudge for you to take your household budget seriously.
—Bindisha Sarang
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First Published: Tue, Mar 01 2011. 09 01 PM IST