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Why budgeting is very Important?

Posted on: 27/Jun/2017 5:05:48 PM
Author Scott Gann has written the book More Money Please. In this book, he explains the various avenues and practices for financial success in a persons life.

One might be led to wonder once hearing the word budget is mentioned and start looking for calculators, papers, pen, and formula.

However, the truth is far different making a budget is not at all such a tough exercise. It is neither a tedious and time-consuming process.

A budget is very much essential if one has to a long-range perspective in mind. Only a few hours are required at the same time, everyone knows that making expenses without a budget is like driving a car with blindfolded eyes.

The budget provides an idea of how much you earn and how much you spend.

If you are interested in having some money on hand, a budget is crucial. The items you buy without any forethought will certainly affect your financial status. If one controls such reckless habits and lives prudently, the financial part can be kept under good check and control. You must be aware of every single Rupee how you spend.

Once you have an idea about the budget, you will become aware of the avenues where expenses can be controlled. For example, if you have the habit of drinking coffee every morning, you would not even think about it while spending for it. However, once you start monitoring the expenses, it will lead you to think about each time you spend. This does not mean to give up the habit of drinking coffee. You have just to keep a check on it.

Taking care of such minor financial issues will ultimately lead you towards saving sufficient money for your priority expenses.

Please note the details of your monthly income after deduction of taxes, etc. and also details of each expense you make. Make note of each bill, receipt, and credit card statements. This will set the stage for making a budget.

The balance money on hand, after all the expenses, is the savings. However, there is wiser way as soon as you receive the monthly salary, keep 10% aside as savings. You may, in fact, consider this as another expense in your accounting. You can make this saving a long-time arrangement by depositing suitable in any of the saving schemes.This is a simple process. It would build later as an investment opportunity. Once you make this saving an automatic process, the monthly amount brought home would be lesser by that margin.

Loans and EMI:

In the present lifestyle, it is possible to avail all extra amenities such as an own house, luxury car, dream holiday just be availing loans. Even for more expenses, you can avail personal loans. However, when the extent of loans goes up, it may prove to be a burden unmanageable. It may lead to a situation where a large lump sum is taken away from your monthly income and only very little is left for running the household. So, ensure that the total installments on various loans are in the manageable range. This includes insurance coverage as well. Here are some rules to observe and follow regarding EMI (Equated Monthly Installments) for various loans.

Insurance:

Most of us have some confused ideas linking investment and insurance and end up w with insurance policies. Insurance policies are also procured as a means of saving Income Tax. This may lead to a situation where one individual ends up with several policies.This would increase the burden of the monthly total premium paid. If you take the prevailing inflation rate, the effects would be even more negative.

There is a general rule that insurance premium payment must not exceed 8% of the monthly income. In case you are exceeding this, you may think about closing the excess ones.

Personal Loans:

Personal loans any be taken in case of real emergency needs. However, most of us have the habit of indulging in taking a personal loan for luxury needs.

As the interest for personal loans is generally on the higher side, precaution should be taken in this regard. One has to remember that personal loans will also increase the monthly burden of loan repayment.

As per the experts observations, personal loans must not exceed 10% of the monthly income. The credit card payments also fall under this 10% limit.It is advisable to close the dues on top priority, Closing it as quickly as possible is the best practice. 

Vehicle Loan:

In the present lifestyle, it is easier to buy an own car than buying a house. Vehicle loans are also easy to get. However, it is better to ensure that this EMI does not exceed 15% of the monthly income.

For vehicle loans, especially car, 20% advance payment has to be made. It is better to close the loan within 4 years. The total monthly transport expenses of the family should not exceed 10% of the monthly income.

House Loan:

It is not at all a mistake to avail a housing loan to realise the dream of an own house. However, please ensure that the EMI does not exceed 40% of the monthly income. The lesser it is, the better. In a total concept, all monthly loans put together must not exceed 50% of the monthly income.

In case it exceeds, the budget burden will increase. So keep all the above rules/suggestions in mind while planning to take any loans. In case your present debt burden is on the higher side, please take initiatives for reducing this as a top priority.