Saturday, April 1, 2017

Where’s my budget?

Article for Bethlehem Matrimonial - Apr 2017

Imagine this. You are nearing the end of a month. Suddenly you need a sizable amount of money for something which you didn’t anticipate. What condition will you be in, considering your current way of life? Will you be able to manage the additional funds required or will you be totally at a loss on how to manage this need for extra amount?

Most well-known companies and governments across the world, plan for their expenses a year in advance in the form of a budgeting exercise. Needless to say how effective this activity is for them to manage their finances better. Families around the world do a similar activity though usually not that systematic as established companies.

It is extremely important to have a plan put in place both for short term and long term. Short term includes planning for a month and up to a year whereas long term plans are usually for many years into the future. The former is where we usually plan for daily expenses, equal monthly installments (EMI), family trips etc. The latter usually refers to long term plans such as investing in assets, securing the future of your family, insurance policies etc.

I was very skeptical about using credit cards till a few years back. This was partly due to being ill-informed and rest due to resistance to change from a debit-driven life. I got to know that the horror stories associated with credit cards are induced by the users themselves abusing the facility. As long as you balance your income and expenses and learn to stay well within the self-defined limits, credit card is not really a monster. In fact it helps you to plan your life better by ensuring that you don’t exceed certain cut off limits for your expenses.

For our family, my wife and I’ve defined a monthly limit for our expenses on credit card. We ensure that the spending on credit card stays within the limit. If an expense can be postponed for the next month so that it doesn’t affect the limits, we do that. Else we plan to spend the additional amount this month and adjust it against the next. We looked at our monthly income and considered our regular monthly expenses before deciding on the amount for this limit.

A very important aspect of a family budget is planning for contingencies or eventualities similar to the situation we pictured in the beginning. A good way of tackling such a situation is to have an amount stashed away as an ‘emergency fund’. It is extremely critical to ensure that this amount is not diluted with any other funds kept aside for planned expenses. Hence it is advisable to keep this amount if possible in a separate account or in some form that can be liquidated easily.

A lot of us now live in a world of EMIs or regular fixed periodical expenses. Some of these amounts linked to a bank get directly deducted from our accounts at a fixed date and we won’t even be able to touch that amount since the bank puts a lock on it. There are others for which we need to ensure that enough money is there in the account so that a cheque when presented is honoured. This again requires diligent financial planning backed by effective reminder mechanisms such as creating a calendar event on your phone which reminds you well in advance that you need to plan for the payment.

EMIs can be relatively easy since you tend to remember your payments on a monthly basis. The other regular fixed periodical expenses can get tricky since these won’t be on a monthly basis. You need to ensure that you don’t forget to plan well in advance and get reminded as well about such payments. Else you’ll end up with lots of fines and charges which become an unnecessary burden on your budgetary plan.

There are many more financial planning tips that we all follow in our lives. The ideal approach is to find what suits us the best to balance our income and expenses so that we will always be able to manage the funds effectively. Having said that, it is equally important to have our families and friends along-side so that there is always someone to lend a helping hand in case of emergency!

May you be blessed with the acumen to plan your family budgets so that you’ll always be on the right track! 

God bless. 

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