A budget is not meant to see if you have spent more money drinking and partying, instead of paying for your floor cleaners and groceries. The point of a budget is to
- Save some money by the end of the month.
- Ensure you are living within your means instead of just at, or beyond your means
- Stop living paycheck to paycheck.
Do you really need any more convincing beyond the three reasons I have given you? These are life changing values, which can be achieved with very minimum effort. Less than the time it takes to shower or use the toilet. Less than the time it takes to brush your teeth. That’s how much effort it takes to maintain your budget, and the benefits outweigh the uses.
Unspent earning is not Savings
A common myth experienced by a lot of people, including myself, involves moving money into a savings account as soon as you get the money. Full marks on intent. The problem comes somewhere around the middle of the month when you realize that you need to withdraw money from your savings, and all your plan goes for a toss. I tried this multiple times, each time with the intention of “This time, I’ll not screw up” and wallah – the devil of expenses never failed to knock on my door.
Don’t fool yourself into thinking that putting money in a savings account is saving it. Until you track your expenses, which is what a budget is all about, you’ll never know the truth about yourself. By the end of the month, if you are breaking even without any spill over of savings to the next month, you are living pay check to pay check – a situation leaves you financially vulnerable.
How much should you be Saving
If you think that a budget is like a detailed, line by line, excel sheet full of advanced Excel formulas – then you are completely wrong about it. Keep a target to save at least 20 percent of their income. Of that 20 percent, split about 10% to 15% into your retirement goals, and the other 5% to 10% into your emergency wallet and other saving goals. This is a starting point. The more you can save, the better it is. However, there is a notion that you should save about half of your money. Remember, a budget helps you reach this goal – a mechanism through which you can save more.
Money in the bank is not Savings
Remember, savings mean increasing your net worth – and not stuffing money in a bank account. I know people who do this and think getting a simple interest of 6% (out of which 30% is chugged by the government) is what savings are all about. No, they are not.
Try to reduce the principal on your loans. This will reduce the interest amount on your loans and in turn reduce the overall EMI. That is what REAL SAVINare is all about. By using this money, you are not really saving money by putting money in your bank – but it is boosting your net worth. That is what matters! That is what Saving is all about.