Budgeting and saving

A budget is a written plan that balances income and expenses. Budgeting means deciding in advance how money will be spent. A family might fix how much goes on food, rent, school fees and transport each month, and how much to save.

Budgets serve goals: a school trip next month, sports equipment in six months, higher education one day, money for emergencies. To set a goal, ask:

• What do I want to achieve?
• How much money will I need?
• By when?
• What steps will get me there?

A budget stops wasteful spending (too much eating out, impulse buying), puts important expenses first, and helps you live within your means.

Four steps in budgeting (Fig. 5.3):

• Identify your expenses: list everything, big and small.
• Set a savings goal: to save Rs 3,000 for a bicycle in six months, put aside Rs 500 a month.
• Track your spending: compare what you actually spend with the plan.
• Review and adjust: when bus fares rise or a doctor's bill comes, change the budget.

Saving means keeping part of your income aside for future use. Life is uncertain, so savings are a cushion for emergencies, and they can later be invested in fixed deposits, shares, mutual funds or property.

Save first, spend later. Many experts suggest this rule: Expenses = Income - Savings. If a family gets Rs 1,00,000 and saves Rs 20,000 first, it has Rs 80,000 to spend. If you spend first, there is usually nothing left to save. Even people with small incomes can save something regularly.