It is budget time for many

Jagjit Singh

THE financial year 2016- 17 is soon approaching its D-day which is 30th June, 2016 and this is the time when majority of institutions who follows their accounting year as 1st July to 30th June, must be busy in preparing budget for the coming financial year.

This is a yearly exercise which is extremely important for every business organization as a going concern entity. If budget is so important for a business entity, then why can’t it be equally important to an individual or a family? Running a family or a house is nothing less than managing a mini business house.

In order to run operations of a business entity if we need budget, then in the similar way we need budget in our personal life as well. “A budget is generally a list of all planned expenses and revenues; it is a plan for saving and spending”.

In other terms, a budget is an organizational plan stated in monetary terms. After going through this simple definition, don’t we now feel more attached with the word ‘Budget’, than was the case earlier? Is it not a fact that this terminology touches our daily life, in one way or the other?

So knowingly or unknowingly, we all deal with this exercise of preparing a budget in our own fashion. The only hitch which I could foresee here is when most of us do not undertake the budget exercise in a formal manner. This is due to the fact that some of us are under a wrong notion that preparation of any budget is the job of a qualified accountant.

This may be partly true if we are talking about budget preparation for a big organization or the country’s budget, which may involve some complexities. But what I am referring here is your own monthly budget and I am sure its preparation is well within your reach, without involving any rocket science per se.

In order to prepare the monthly budget, you simply need to know the details of your expected revenues/ income and the corresponding spending which you intend to undertake during the month. Start by recording your monthly income, gather income details from all possible sources and figure out how much money you can expect to make each month. Put this information on your budget sheet under the heading “Income.”

Once you have recorded your income from all sources, the next logical step is to list the expected “Expenses” for the same month. Figure out how much you regularly pay for things like rent/ mortgage, utilities, fuel, phone, TV cable, internet access, etc.

You should also add-in expenses on groceries by using recent shopping bills. While on expenses, don’t forget to record the monthly loan instalments, in case you are servicing any loan taken to acquire a car, house or any other facility.

Add up all the numbers in your “Expenses” section and subtract this from the “Income.” After this exercise, do you have any money left over? If you do, GREAT! This is the extra money for whatever you like most, but under normal circumstances such surplus money should invariably form part of your regular savings/ investments. Conversely, if there is no left over for savings/investments, you need to rework your budget.

Can you cut out some expenses from your recreation activities or luxurious purchase?

Or may be reduce your grocery bill by controlling the purchases of some junk food items? These are the two easiest areas to cut money from. If you are still over your income, you may need to rethink your strategy by re-scheduling the servicing of a loan or deferring purchase of some non-essential items.

Despite your best efforts if you fail to identify any expense which can be reduced, then this is also a warning signal for you that for God’s sake do not add any further loan/ liability to your portfolio.

Also under such circumstances, you continue to remain in a danger zone and concerted efforts must be made to reach a stage when your monthly inflows [i.e. revenue/income] will become higher than the outflows. This can be achieved by continuous tracking of your budget on monthly basis.

A professional approach to any budget tracking exercise is to explore the possibilities of cost containment, while also finding alternate ways to enhance one’s income. It makes a perfect sense to do some small sacrifice today in order to make your tomorrow a better day. Be ready for such sacrifices and days are not very far when you will achieve positive results automatically.

Remember, budget is the cornerstone of a responsible financial planning. It shows exactly how much money you have and where it’s being spent. A budget can help you find ways to save money and plan for the future.

It is designed to help a common man to gain control over his/ her spending, and with proper planning it can help to improve one’s financial situation.

So from here on, don’t be dreadful of this wonderful exercise called ‘Budget’, rather make best use of this tool in order to ensure that you always live in a safer zone whereby your monthly inflow is higher than the outflow.

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