FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Get smart with household budget!
The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices. You’re also assured of freshness if you go to the market.
Where does your monthly salary go? Do you allocate a certain amount to be spent on the house, or is it a case of buying things as you need? Did you know that there are huge savings to be had from maintaining a budget, and not just in terms of cost?
What is household budget management?
Managing a budget for your household is more than just keeping track of all the expenses for the month. It is a chart of how much income there is, how much will be spent, and what can be saved. The idea of the budget is to broadly plan for living within your means. A budget ensures that bills are paid on time, household debts are cleared and savings goals are set and achieved.
A really simple way to do this is to label different envelopes with the heads of all the recurring expenses of the month (such as rent, electricity, help, car EMI, etc.). You then know exactly what is going where, and if there is any left over, it can either be carried over to the next month, or set aside as a saving.
You could also project your monthly income and create accounts from which to debit or credit money as bills are paid and income is received.
Where do you start?
- Begin by making a plan
- Create an inventory of needs and wants, from the biggest to the smallest. Learn to differentiate between needs and wants; those things that are essential to living, and those that make your life better. Categorise between non-negotiables (such as food, rent, clothing, education, transportation, and insurance) and everything else. Or further divide into what is necessary, what is adaptable, and what is expendable.
- Select an appropriate budget format.
- You can download these for free from the Net, or create one of your own. You need to ensure your spreadsheet works on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation. A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount etc.
- Track your expenditure for a month to establish your spending pattern.
- This also allows you to prune out those things that can be classified clearly as ‘frills’.
- Become a conscious spender.
- Now that you have an idea of where your money goes, you have to actually keep that in your mind while you spend. And set aside time to review your finances and expenditure on a weekly basis.
- Go local.
- The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices. You’re also assured of freshness if you go to the market.
- Prepare for the unexpected.
- Car repairs, medical costs, weddings and birthdays, appliance maintenance, emergency travel, all qualify as additional expenditure, which you can actually plan for with the help of your spreadsheet, now that your finances are clearly laid out before you.
Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.
Making and maintaining a good household budget: Tips
- Share responsibility.
- If you have a family, then it’s very important that they know and understand how income is distributed over the month, and what it is you are working towards. You can even ask your children, if they are old enough, to contribute to the budget. You will be surprised at the innovative suggestions you will receive. Most importantly, you have buy-in.
- Set targets.
- Save money on a monthly basis to achieve your target, whether it’s a high end mobile phone, or a holiday. Don’t succumb to instant credit card purchases or EMI payments on the smaller stuff. In fact, put away your cards and stick to cash.
- Think out of the box.
- Emergencies are natural, and you will find yourself strapped for cash at times. The point is not to panic, but figure out a way in which you can spend less, save more, yet continue to live in the manner to which you are accustomed.
- Review what you want.
- Differentiate between what is meaningful, and simply ‘keeping up with the Joneses’. Continue to do this often, because your desires will change, as you grow.
- Be flexible.
- A budget is not meant to tie you down; rather, it gives you defined economic freedom, not financial restriction.
A good budget allows you control over your money, helps you enjoy rather than worry over it, makes spending more purposeful, and protects you from financial problems.