Tips to create a ‘holistic’ household budget

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HIGH inflation has taken a toll on our monthly savings. One needs to make a conscious effort to manage our finances better!

Do you allocate a certain amount to be spent on the house, or is it a case of buying things as you need? Did you know that there are huge savings to be done from maintaining a budget, and not just in terms of cost?

What is household budget management?

Managing a budget for your household is more than just keeping track of all the expenses for the month.

It is a chart of how much income there is, how much will be spent, and what can be saved.
The idea of the budget is to broadly plan for living within your means. A budget ensures that bills are paid on time, household debts are cleared and savings goals are set and achieved.

A really simple way to do this is to label different envelopes with the heads of all the recurring expenses of the month (such as rent, electricity, help, car EMI).

You then know exactly what is going where, and if there is any left over, it can either be carried over to the next month, or set aside as a saving. You could also project your monthly income and create accounts from which to debit or credit money as bills are paid and income is received.

Where do you start?

*Begin by making a plan: Create an inventory of needs and wants, from the biggest to the smallest. Learn to differentiate between needs and wants; those things that are essential to living, and those that make your life better.

Categorise between non-negotiables (such as food, rent, clothing, education, transportation, and insurance) and everything else. Or further divide into what is necessary, what is adaptable, and what is expendable.

*Select an appropriate budget format: You can download these for free online. You need to ensure your spreadsheet works on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation.

A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount.

*Track your expenditure for a month to establish your spending pattern. This also allows you to prune out those things that can be classified clearly as ‘frills’.

*Become a conscious spender: Now that you have an idea of where your money goes, you have to actually keep that in your mind while you spend. And set aside time to review your finances and expenditure on a weekly basis.

Go local: The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices.

You’re also assured of freshness if you go to the market.

Prepare for the unexpected: Car repairs, medical costs, weddings and birthdays, appliance maintenance, emergency travel, all qualify as additional expenditure, which you can actually plan for with the help of your spreadsheet, now that your finances are clearly laid out before you.

Reassess the budget after a month, making adjustments that are necessary.

<>Maintaining a good household budget

*Share responsibility and work towards goals with your entire family.

*Set targets and save towards specific purchases. n Think out of the box, when you have emergencies and figure creative ways to save on costs. Keep aside an emergency fund as well!

*Review what you want. Differentiate between what is meaningful, and simply ‘keeping up with the Kapoors’.

*Be flexible: A budget is not meant to tie you down; rather, it gives you defined economic freedom, not financial restriction.

A good budget allows you control, and helps you enjoy and makes spending more purposeful.

The writer is the CEO of bankbazaar.com