Let’s put on our thinking cap:
Depositing our pay
cheques in bank and using the credit and ATM card for spending seems easy.
However keeping the track of your income and expenses, to get full value for
your money is possible only with budgeting. Budgeting helps most of us to
keep track of our income and spending and not overspend.
In practice 10
budgeting myths retard the savings of a lifetime. They are:
1) I earn a lot and need not budget:
This requires a change of perspective. Michel Jackson lived like a king but
died awash in $400 million debt.
Budgeting by
watching your spending pattern helps trace unnecessary expenses on
clothes or eating out, and help you save for a future or for a much wanted
dream holiday. So how much you earn has got less relevance. What is more
important is budgeting. Proper budgeting can make a low income earner to
retire richer and overspending can make a high income earner a pauper.
2) I hold a secure
job and see no reason to save:
This does not hold
well today with large corporations going in for labor layoff to save costs
during recession. Small corporations also put you at a risk with the death
of the owner or the company going into losses.
This insecurity
demands caution to save for spending during such periods when you are caught
unaware, with an emergency fund coming handy.
3) I am poor in
calculations and cannot budget:
With useful tools
like spreadsheet that help account for expenses and income earned make the
budgeting much easier. A look at the spending helps avoid unnecessary
expenses to budget and save in future. If you are interested one can easily
learn budgeting. So if you say ‘I don’t know how to make a budget’, it shows
your level of interest and willingness to save for a secured future.
4) I am lucky; I
will never be short of money:
However your ability in meeting high bills and other unpredictable expensive
events like life threatening accidents, or a major surgery without
experiencing shortage of money may not be always true.
So better save and be prepared to face unpredicted contingencies and then
use the savings for something else that you may consider desirable.
5) I pay my bills
promptly and do not need budgeting:
Congratulations I
appreciate your credit worthiness, but going into negative balance is also
quite easy. You may be self disciplined. It doesn’t mean that you need not
make a budget. Preparing a budget makes you much more disciplined and spend
consciously. So budgeting with saving helps avoid going into negative
balance or overdraft.
6) Budgeting could
lead to deprivation:
Budgeting is not
frugal living and foregoing all pleasures like a movie a month and an eat
out once a week, but it just not allowing your earnings to be not overtaken
by your expense. Everyone is planning to save, planning to invest, but do we
have a well thought out plan for spending. A smart spending plan only can
lead you to save more.
There is no need
to feel deprived with budgeting; it just means saving a percentage of your
income spent unnecessarily to have a secured future.
7) I have small
wants and find no need to save:
This need not be a
stable attitude in human nature, with you wanting to take advantage of
certain financial trends in the market like buying house or land at cheaper
rates, or investing at higher rates towards building a bigger retirement
corpus. Hence budgeting helps to save when you do not want money for a time
when you could profitably use it.
Your wants may be
small but basic needs like food, shelter, and clothing are becoming costlier
with inflation. Also you need to take into account your health care needs of
the future.
8) I get rises,
bonus and tax refunds and find no need to budget:
I think you have
been lucky all these years, however these benefits are highly unpredictable
and placing ones hopes fully on them is futile. It is better to budget and
save than depend on unpredictable benefits like bonus, raise and tax
refunds. The recent recession has taught us a lesson to all of us which we
should not forget easily.
Budgeting and your
future
Take charge of your future now. Budgeting is the first step towards
controlling your financial destiny. Don’t let your unconscious spending
habits decide your financial destiny.
The
author is
Ramalingam K,
an MBA
(Finance) and Certified Financial Planner.
He is the Founder and Director of
Holistic Investment Planners (www.holisticinvestment.in)
a firm that offers Financial Planning and Wealth Management. He can be
reached at
ramalingam@holisticinvestment.in.
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