Dealing with month-end financial blues: It is impossible to account for every penny, but if you track your expenses, you are not only aware of your outflow but can also compare it with your income at the end of the month.
Maintaining a monthly budget is always a task, especially for middle-class families with limited or fixed income. With our growing needs and expenses, it becomes difficult to comply with a set budget. However, today it has become a necessity to maintain a leak-proof budget to avoid any financial difficulties at the end of the month.
It is impossible to account for every penny, but if you track your expenses, you are not only aware of your outflow but can also compare it with your income at the end of the month. It helps you to identify leaks, if any, and get over the irregular and unnecessary expenses. So now when you have decided to set out on a financial journey, here are some useful tips that will help you to solidify your budget and make it leak-proof:
1. Find your budget
There’s no ‘best’ budgeting technique; everyone must learn to strike their own balance between income and outgo. It’s completely fine if your method differs from the others. Always follow the path you’re most comfortable with. Personalise your spending plans according to your needs.
2. Know your goal
You don’t get anywhere if you don’t have a goal. Setting a monthly budget is one thing, but knowing your ultimate goal for setting the monthly budget is what matters the most. For example, you may be accumulating savings for future investments, to cope with urgent emergencies, buying a house or a car, etc.
3. Keep an eye on your expenses
For a leak-proof budget, it is imperative to track down all your expenses. You should have a clear understanding of your spending, i.e. what you are spending on and where you are spending. With a variety of techniques to choose from, try the Envelope Method or download a budgeting app that will help you to keep a track on all your expenses.
Envelopes can assist you in the proper planning of the expenditures. You can maintain individual envelopes for each of your expenses such as utility bills, children’s fees, insurance premium, entertainment, loan repayment, Medical, etc. This method will help you from making any unnecessary expenses.
Another way is using a budget app. In the evolving world of technology, it is more convenient and easy to track down your expenses via various budgeting apps such as Money View, Mint, Mvelopes, etc. They not only help users set monthly budgets but also track their bills and makes sure they don’t miss a payment. They also organise bank and credit card accounts for the users.
4. Create a spending rule
You must have rules for spending. A commonly applied rule is the 50/30/20 rule. In it, you assign 50 per cent of your income to necessities, utilities, and unavoidable expenses such as children’s fees. Then, 20 per cent goes to investments, premiums, loan repayments, insurance premium, savings, etc. The remaining 30 per cent afford you your lifestyle choices and entertainment. However, spend the 30 per cent judiciously, avoiding unnecessary shopping and outings. Plan you expenses wisely. Always carry a list before shopping for food items.
5. Don’t get tempted
Shopping and dining out are fun. However, avoid tempting situations such as impulsive buying, daily dining and clubbing, etc. Restrict some of these high-spending activities to once or twice a month. Enjoy fun-filled activities such as hiking, bowling, etc. on weekends rather than shopping.
6. Avoid missing deadlines
Make sure you give your bank, insurance and mutual fund agencies, an ECS mandate for your premium payments, bill payments, SIPS, etc. Penalties for late payments create monthly financial hitch and hence is always best to avoid it.
7. Don’t carry credit cards
If you are a shopaholic, carrying credit cards with you is a big mistake. Having credit cards in your pocket will provoke you to indulge in unnecessary shopping. Unchecked use of your credit cards will put a drain on your savings.
8. Bigger currencies can be your saviour
Carry cash instead of cards. It’s always smart to take higher currencies rather than many small notes. For example, keep a 1000 rupee note in your wallet rather than many 100 rupee notes, as there’s a chance you’ll end up spending the smaller notes but would not want to break and use that 1000 rupee note.
9. Reserve some for contingencies
Some expenses arise out of the blue which you are completely not prepared for, for example, a washing machine or refrigerator failure at home, technical problems in the car, medical expenses, cash for children’s school excursion, etc. Fixing the car, for example, could set you back by Rs. 5000 to 10,000. These are unforeseen expenses that can strain your finances. How about maintaining a contingency fund – through a recurring deposit or debt mutual funds – to which you add a few thousand rupees every month, and have a sizeable amount in a crisis?
10. Examine and inquire
Always do your homework before making any expenses or investment. With so many loans and insurance companies ready to accept your money, never fail to research the pros and cons of different insurances and loans available in the market. Compare them and take the one that suits you the best or you might just end up being higher premiums and interests. Try negotiating with the company for better deals.
The author is CEO, BankBazaar.com