Many people feel that the root cause of their financial worries is that they're making less money than they ought to be. However, very often, our problems are caused by poor money management, rather than lack of money in the first place. Living within one's means is an art—you don't want to spend too much on frivolous items, but you don't want to compromise on occasional fun activities like dining out, watching movies or travelling as a family. Budgeting helps you strike a fine balance between your wants and needs.
Budgeting is the art of spending your income in a way that allows you to live within your means and achieve a state of financial wellness. Here are some simple, time-honoured budgeting strategies that will ensure that regardless of how much you make, your bank balance comfortably stretches to the end of the month.
1. Cap your monthly outgo
Before you begin allocating money to various expense heads, draw up an estimate of your monthly outflows, based on your track record of the last 3-6 months. This will help you understand how much you typically spend in a month, and whether that figure makes sense given your present income. If your monthly outflow is 90-100 percent of your monthly income, you may want to bring it down to a level that gives you room for savings. While there is no universal rule, saving 20-25% of your monthly income is a very good target to have; this means that your maximum monthly outgo would be restricted to the remaining 75-80%.
2. Build in seasonal/one-time expenses
There are certain costs that are seasonal—for example, school fees at the beginning of an academic year, winter clothing for the family, or festival expenses. When creating your budget at the beginning of the month, factor in these upcoming expenses and calibrate your budget accordingly. Barring hard-to-anticipate scenarios like sudden medical costs, such expenses are usually predictable. If you can, temporarily postpone other discretionary expenses to take care of the above costs.
3. Be a sneaky saver
Expenses have a way of sneaking up on you; get even by being a sneaky saver. The minute you get an unexpected payment from a client, or your bank credits interest on your savings account, transfer the windfall amount into a savings instrument such as a mutual fund or PPF. Alternately, pay off an installment or a bill with that money. Leaving extra money lying around just creates a 'splurge reflex', which you want to avoid at all costs!
4. Keep credit card spending under control
You probably knew this already, but we will say it again—credit card debt is really expensive and can hurt you badly, if it spirals out of control. Keep tabs on your credit card debt, and try to bring it down to zero as soon as possible.
5. Get the advantage of cash-back or loyalty points when shopping online
There might be a zillion e-shopping sites out there selling everything from movie and travel tickets to clothing and gadgets, but we only really use a handful of them. List your top 4-5 ecommerce sites and subscribe to their respective cash-back or loyalty programmes. In most cases, all you'll have to do is download an app or deposit some cash into an e-wallet. This can give you some pretty nifty savings over time—provided you shop sensibly!
6. Limit the number of trips to the ATM
Having more cash in your wallet makes you want to spend more. No wonder there are ATMs at every corner of the city. Limiting the number of ATM withdrawals forces you to be more disciplined with your money: particularly, the smaller expenses that add up over time. You also save money on withdrawal charges beyond the free limit levied by banks.
7. Involve the entire family
Household budgeting is not one person's job. Each and every member of the family should be entrusted with holding up their end of the deal. For example, the next time you fly somewhere as a family, take packed meals to the airport with you instead of spending three times the MRP on snacks. Or make your kids responsible for ensuring that gadgets or appliances at home are switched off when not in use. And every time the family hits the spending target for the month, take a small treat to motivate yourselves further.
Smart budgeting can help you slash unnecessary expenses. However, given the rising costs of living, it is not enough to be a disciplined spender: you must also be a smart saver. Mutual funds are a popular tool for creating long-term savings. To know more about how mutual funds can help you achieve better financial security, check out The Mutual Funds Sahi Hai campaign, launched by The Association of Mutual Funds in India (AMFI), at www.mutualfundssahihai.com.