Well planned budget eases financial breathing

A well financial budget eases financial breathing.

Its not the Rs. 3000 IPod or the trip to Ooty makes difference each month. The expenditures which are unnoticed often make a lot of different. Until lately, I didn't realize that a Rs.2.00 tea at the tea stall thrice a day would make it a surprising Rs.180/month. This is what actually counts and keeps spoiling the dish each month and month by month.

One of my; rather 'un-necessary' spending were - a lunch each day at cafeteria. Though this wouldn't cost me any more than 35 - 40 each day; but it totals to a whooping Rs. 1000 - 1200 per month. Now this counts a lot and am sure is making my money slip from my purse.

How do I save it. What do I do. I kept wondering.

Later I've read a post, rather suggestion by Richard Jenkins at MSN Money. Richard believes in a 60-10-10-10-10 solution. He is of an opinion of dividing monthly gross income as follows.

• 60% -- committed expenses.


• 10% -- irregular expenses.


• 10% -- long term savings / debts


• 10% -- fun money


• 10% -- retirement.

Jenkins believe the best tweak would be to cut down committed expenses.

A beautiful article on How to save enough money, age no bar by Veena Venugopal with Kayezad E. Adajania. I have recomended this article to several friends of mine.

Venugopal, in this article highlites three different types of people when it comes to saving money. He believes what he calls

• Early Birds


• Late Bloomers


• Final Chargers

Early Birds according to Venugopal are people who start savings from the age of 25. He advices Early Birds to start saving 10% of (post-tax) income till the age of 30. Then step up to 20% (from 31 - 40) and 30% (from 41 - 50) and finally 50% in age of 50's till retirement.

This sounds good; but how many of us would be able to achieve this. Starting to save at the age of 25 sometimes itself seems challenging.

Late Bloomers are adviced to start their savings one step forward -- from 30% (30-40) and 40% (age of 41 to 50) and finally 50% when they are 50+.

Final chargers could still have some chance of 40% in 40's and then 50% in 50's.

The key to start saving early is compounding.

Similarly, having a decent and workable budget helps us to achieve savings goals when we're left out of money at the end of the month.

For me, I have different categories for budget. Food, Bills, Gifts given, Transport, Loans etc. Each category is been allotted a specified amount and then a seperate envelop for better understanding of what's left out. Each time I go out to the departmental stores, I know I have groceries on the list and so my 'food' envelop sheds money. Next time I know how much i'm left out with.

Maintaining a seperate envelop for different categories sounds more of a added work. But don't worry. I have a better solution which I started since 2003. coming up in my next blog post.

A Budget need not be a complicated one. Inface the simple it is; the better it is. I would suggest, as I had started categorising my expenditure into three majour categories.

• Essential / Mandatory
• Discretionary (that can be reduced).
• Avoidable.

All Bills would come under essential or commitments like Loan EMI payments, Life insurance premiums to be paid, Income Tax are some of the Mandatory expenditures.

Discretionary would actually be expenditure category which I have to spend; but can actually or dramatically reduce my spending on. The more items in these category the more chance to reduce costs. Like a transportation for me would be discretionary. Similarly Groceries, Fuel charges, Services, House hold supplies are all reducible.

Avoidable are items which I can totally avoid. Like an additional magazine I purchase each month. Dining out. Extra purchases. Its not these extra purchases which make the difference. After all its good for a change we treat ourselves with such luxuries. But problem actually arises when we these luxuries are taken on credit and ultimately we get items which we need to pay in future. Now this is when a luxury become a liability.