Budgeting is the First Power Step to Financial Wellness. An important activity as part of a Family Budget is Expenses Tracking. There are a number of tools available online as apps or spread sheets for computers. But many of these are not customised for Indian families.
The budgeting sheet that I use for Indian usage is available in this link. This sheet has many broad headings with several expenses listed under each. I have provided columns for the planned and the actual expenses too.
Myths related to Budgeting
I found that most families do not follow a planned budgeting activity. The reason is because of a lot of myths attached to budgeting. Let me address some of these here:
- Anyways my budget will be in deficit. So why should I do it?
A budget is a tool for monitoring where we stand. Management personnel have the saying “What is measured gets better”. So even if I know that I will be able to make my ends meet, I need to know by how much I am deviating. Over a period of time, I can find ways to create a surplus.
- I feel stressed when I do a budget. So I don’t do it.
A budget is like a vaccination injection. Yes, it is painful and may even cause a slight fever. But it is essential to prevent major diseases in future.
Not doing budgeting can lead to catastrophic life events.
In my observation, I find that people who sustain their budgeting activity for about 6 months find it a highly motivating family activity.
- I can keep my budget in my mind. So there is no needs for writing things down
How many times have we forgotten, in the evening, what we had for breakfast? Why do we keep a note of Things To Do in office?
As a normal person, we have the capacity to only retain a few things in our mind. How can we remember the amount spent at a restaurant 3 weeks ago? Or the price of an LPG cylinder last month? Or the bill for stationery bought 12 days ago (if at all we remember that purchase)? That is why we need to write things down.
Tracking and Reviewing Expenses
1. Daily Entries
I recommend noting expenses on a daily basis. One can use apps or spread sheets or a diary or even small paper slips with the day of the week written on it. Where there is a will there is away. Just find a way that suits you.
2. Have a Weekly Review
I prefer fully rested Sunday evenings for this. Have the review done along with your spouse and children if they have entered their teens. Yes, you read right; along with your spouse and children.
Why Spouse? Involving your spouse is most important as a family is a “Rettai Mattu Vandi” (twin bulls cart in Tamil). If both are not aligned, the cart (family) cannot go far. If you have some secret expenses not known to your spouse, maybe it’s time to confess!!!
Why children? Because they have a responsibility towards the family. It is the duty of the parents to instill financial knowledge and responsibility in their children. Involve them in financial decision, let them also know how much you earn, what it costs to live, why certain purchases need to be postponed to latter, also why certain expenses cannot be allowed at all.
The weekly review can be only for about half an hour.
3. Monthly Major Review and Plan
This can be done on the last Sunday of every month. A detailed analysis of what went right and wrong, what was not expected, what to expect in the coming month, etc can be reviewed in detail. The use of the 3As Method will benefit a lot at this time.
Tips for Better Budgeting
- Be Flexible
Budgeting is a plan; not a Law of the Universe. Be flexible with expenses even if they exceed it by 20% occasionally. Can you avoid an additional visit to a restaurant if your in-laws are visiting?
Being flexible also brings responsibility instead of rebelliousness from yourself and from other members of the family. Heard of binge eating by people who are on a strict diet? That is typically rebellion.
- Plan for Increasing Surplus
“The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark” – Michelangelo.
Michelangelo
Don’t just limit the target of the budget to just make ends meet. Aim to create a significant surplus. We have the capability to think, plan and implement to achieve it.
- Look for alternatives
As in any business or commercial venture, constantly look for alternative sources / substitutes for the same task. Instead of a car which will be used maybe 20 days in a year, can you think of Ola and Uber? Instead of a huge bill on supplements can you think of more vegetables, fruits and nuts?
- Use the 3As formula
Ruthlessly cut down on the Anavasiyam category of expenses. Remember our prime financial responsibility is towards our own family members.
New Budget Formula
The old formula for budget used to be:
Income – Expense = Savings
We recommend the new formula:
Income – Savings = Expense
This is not just jugglery of terms. The key is the attitude and approach to solving the problem.
Example Differentiating the Formulae
Let’s take a yearly example for which many parents approach banks for a personal loan: School / College Fees.
In the first formula way, I see that I don’t have the money and simply seek a loan. Then I pay the EMI throughout the year. In case there is something left, I save. This is Financial Sickness.
Using the new formula, I start a Monthly Recurring Deposit (RD) for a year at the bank where my salary is credited. This will add up to the school fees by the beginning of the school term. I save first. Instead of paying someone interest, I earn interest. There is Financial Wellness.
Can we think of similar RDs for other yearly expenses like car & life insurance premiums, yearly travel, pilgrimage, etc?
Summary
Budgeting is not done by most families due to myths related to it. Budgeting is an essential and very important first step towards Financial Wellness. The article also discusses about ways and tips to make budgeting a family task, filled with fun, responsibility and energy. Happy Savings.
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