Three simple rules for managing your budget

Sun Nov 25, 2012 5:39pm IST

A shopkeeper poses for a picture as he counts rupee notes at his shop in Jammu May 16, 2012. REUTERS/Mukesh Gupta/Files

A shopkeeper poses for a picture as he counts rupee notes at his shop in Jammu May 16, 2012.

Credit: Reuters/Mukesh Gupta/Files

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Pranab and Bishwadeep both work in the same company, at the same level with the same salary. Yet, Bishwadeep is always relaxed and looks in control of his personal finances. If someone asked Pranab, what his net worth was or what the outstanding on his home loan was, he would give some off the cuff answers, which usually would be way of the mark. For the same questions, Bishwadeep would have the answer right to the last paisa.

So what? One may ask. The answer lies in the calmness and confidence of Bishwadeep at work, which is actually a result of his financial stability, which in turn, is a result of the biggest asset in Personal Finance: Your Pen and notepad. Silly it may seem but your pen and notepad could be the difference between a financially stable life and a not so stable one. Let us look at Bishwadeep's life to know the secrets.

(For more stories, you can also visit <www.bankbazaar.com>)

Making a budget and writing it too…

Like most of us, Bishwadeep too makes a budget, but where he scores is that he always makes it a point to write down each component of his budget on his diary. In fact, he has a long size diary so that he can write down everything on one single sheet and be able to view it too. His budget consists of Investments, Incomes, Savings, and Expenses and in that order! By writing down instead of making mental calculations, he is able to squeeze out many expenses and gain extra money to route to his investments.

At the end of the month when he checks his budget and realizes that he still has some surplus, his excitement is beyond comparison. When we do not write down the budget, there is always a lot of possibility of missing out some components, making errors in calculations and most importantly not having anything to compare against in the month end. Bishwadeep gets to keep his excitement and we carry on as if nothing happened.

The other risk of not writing down budgets is that we tend to justify unnecessary expenses, as there is nothing, which makes us liable to any commitment to keep within limits. A written proof of your budget will most likely help you in the mental policing.

Ten minutes every day…

The smile and excitement in Bishwadeep's face is the result of a dedicated habit of writing down every single transaction relating to his money. This includes even the 50 paise he spends on buying a refill for his pen. Although this might look like he is being a downright miser or stingy character, for Bishwadeep it means the difference between saving Rs 300 or nothing. When we do not write our daily expenses, we will tend to miss out on many small bits, the Re 2 parking ticket, the 5 rupee beeda, the ten rupee toll fees, the 3.50 afternoon news paper and so on and so forth. Even 25 rupees unaccounted for in a day adds to 750 in a month. (Rs 750 saved and invested every month in a decent mutual fund would give Rs 1 crore at the end of 25 years!)

Make it a habit to spend just ten minutes to write down every single transaction of the day irrespective of the amount and it will give you a powerful picture of where your money is leaking every month. By writing it every day, the risk of forgetting anything is nullified.

Once every 15 days…

On the 10th and 25th day of every month, Bishwadeep does reconciliation (on paper of course) of his finances. This includes checking his bank account, updating creditors and following up with them, making sure there are no wrong entries on the credit card statements, investment records and every correspondence that he receives from Financial institutions and service providers. This way he is not only able to rectify any errors immediately, but also is able to record the data on his spreadsheet.

You should ensure that you regularly file all correspondence relating to money, including, bills and to record them on your notepad. This way you would be able to generate a comprehensive and accurate report of your cash flow. Once you are able to see your cash flow on paper, the entire perspective changes and you would realize that over a period of 4-5 months you are able to control your money better.

The last line

Although our brain and memory is one of the most fascinating things created by god, it is not prudent to depend on memory or mental calculations while dealing with your personal finance. Put pen to paper and see the entire perspective change instantly. It could be shock, surprise, excitement or any other extreme feeling, but be sure it would guide you to a better financial life.

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