I am Tania Jaleel
The monthly household budget
It is the first step to ensure a smooth financial journey
But this seemingly innocuous exercise is something that many people find it hard to stick to consistently in the long term.
In this week’s ET Wealth, Riju Mehta wrote about why we are unable to stick to our budget and what can be done
Let us take a look at them
It is too unrealistic
Don’t think of a budget as the magic wand that will instantly take away your money woes.
Similarly, don’t expect to save large amounts if you have a low income and all your spends are on needs, not wants.
What you should do
Set realistic targets.
If you intend to save, you will need to track your expenses for a few months before deciding which ones you can cut.
You will also have to discipline yourself about your spends consistently before you can increase your savings.
Inaccuracies in tracking and record-keeping
If you are not tracking every spend or forget to record it rigorously, you will not get a correct picture of your outgo and take wrong decisions or set unachievable goals.
What you should do
Use a tracking and spending app or automated software, or maintain a spreadsheet, or simply keep a notebook to record your spending, and do it regularly.
No spending discipline
Big spenders find it especially hard to stick to a budget because they are unable to control the outgo, leaving them either with no money at the end of the month or unable to achieve their financial goals.
What you should do
A good way to inculcate discipline is to fix your goals and automate savings.
Once you know how much you need to save to reach your goals and the money goes out of your bank account as soon as your income arrives, it will be difficult to access money to spend.
You don’t have goals
If you identify your goals and calculate how much you will need to save every month to reach these, be it for your children or your own retirement, it will be hard to use that money on dispensable stuff.
What you should do
Identify all your goals, big and small, and fix the goal values by taking into account inflation.
Calculate the exact amount you will need after a specified time so that you know how much you need to save each month for every goal.
You are too strict
Your budget is unlikely to sustain if you are being too hard on yourself.
If you cut out all of your and your family’s dispensable, fun spending like eating out or entertainment, you or your family will rebel sooner than later and kick out the budget.
What you should do
Make a provision in the budget itself for light spends or occasional discretionary purchases
Family is not on board
If you are saving, but your spouse cannot resist the urge to buy big-ticket gadgets, or the children insist on keeping up with their peers’ spending styles, you alone will not be able to sustain it.
What you should do
Sit down and talk to them about what you are planning and how you intend to achieve it.
The best way to keep every member motivated is to show them what saving can achieve
Your budget is static
A budget is not a static thing and will need to be changed with altered circumstances and life stages.
A higher-income could mean you can now save for an additional goal that was earlier beyond your reach.
Your budget will have to keep pace with these changes if you want it to work.
What you should do
When the income rises, make fresh investments.
If you face a salary cut, remove discretionary expenses.
When you have a child, include new goals and increase your savings.
Make your budget evolve with every financial development.
You forget big annual expenses
If you don’t take into account the bigger expenses you are planning in the year, say, house painting and renovation or a longer holiday or buying a bigger home appliance or furniture, your budget will go haywire when you have to pay a large amount all at once.
What you should do
When you review your budget at the start of the year, make sure to include the bigger financial expenses you are planning through the year.
This will help you calculate the extent of slashing your expenses require on a monthly basis so that you can save for the bigger expense.
You don’t have an emergency fund
One of the biggest stumbling blocks while trying to stick to a budget is dealing with eventualities for which you have made no monetary provision
What you should do
Before you start work on your budget, build an emergency fund that is equal to 3-6 months’ household expenses.
In addition to this, either buy health insurance or keep a substantial buffer to take care of your medical expenses.
And on that note that will be all for this week
Come back next week for more wealth wisdom
