Previously I had shared some approaches which can be summarised as:
+ Assess your situation – create a personal balance sheet.
+ Create a budget and log all your expenses against incomes.
+ Reduce Debt-servicing to a maximum of 30% of your income.
+ Plan Big Purchases ahead. Attempt to save up for them before you splurge.
+ Don’t be a plastic junkie – Beware of credit cards!
+ Set aside some money for yourself
+ Do some tax planning
+ Plug holes in your budget by identifying and eliminating unnecessary expenditure.
All said and done, these are common sense approaches, which are very often forgotten in the relentless quest for the good life. No rocket science here. Apart from the above, there are a few more things which my wife and I have begun to follow religiously and are simply loving the outcome – more money in our pockets and this time – C.A.S.H (pretty cool, huh?)
We have been budgeting our expenses for more than four years now, and I must say that our personal budgeting tool has evolved from a very simple bare bones template to a nifty little spread sheet, which now also does a bit of consolidation for us. I am working on adding a few bells and whistles to it in the form of pie-charts for some major expense heads. If you feel a little more geekier than that, go ahead and run a Google search for “Free Personal Budgeting Tools” and take your pick!
But the bottom line is to use a tool that works for you – and that could be something as simple as a notebook and pen! All was well, until we began to notice that even though we were budgeting, we were not very disciplined about certain expenses (such as, eating out). We would allocate an amount but invariably overshoot it and the actuals will show up in RED.
During this time, I was also reading up on the internet, and sharing thoughts with friends about this topic and out of some approaches that emerged, we really like the envelope system. Nothing new or unique about it (and definitely not my invention), just that we stumbled upon it and now I am sharing our experience with it, in my blog.
We have begun small, by earmarking some expenses from our budget, as envelope expenses. We have created envelopes, labeled them with the name of the expense and put in the amount that we want to spend in a month, for that expenses. The rule which follow is to incur all parts of that expense head, from the money in the envelop only. We adhere to that strictly. Once the cash in a particular envelope is exhausted, that is the end of that expense for the month! Pretty simple.
A word of caution here – I would not recommend this approach for expenses that are earmarked for something critical such as an emergency health care kitty. Because god forbid, if you do happen to get into a situation where you have to spend money on emergency health care, then you usually cannot put an “upper limit” on the amount of money you will end up spending, especially with spiralling health care costs, these days.
This is an excercise which calls for a little self control and discipline, but the results have certainly been encouraging. For instance, we have completely controlled our eating out (much needed, since my wife and self have restarted our quest for physical fitness, with renewed vigor after a downward spiral!) and this month we also ended up saving a very small, teeny-weeny amount by doing this. All of INR 380.00 and definitely with potential to become the object of ridicule, given our current financial position, but hey, the feel of liquid cash virtually ‘left-over’ (for lack of a better expression) from last month, is sooo good!
This is only the first step in the right direction. In the future, I will be sharing more tip, as I learn, implement and benefit from them.
If you already budget your expenses, then here are some heads, which, if left unchecked, can spiral uncontrollably and hence qualify to become “envelope expenses” :
1. Eating out.
2. Personal entertainment, ie. DVD Rentals, Movies, general amusements, etc.
3. Milk & Vegetables.
4. Fuel/energy costs.
5. –Left the counter open ended, feel free to suggest your own heads, that you think would fit the bill.–
If you do not budget your expenses, now is a good time to start. Perhaps, if you are interested, you can send me an email request (email@example.com) and I can send you the template which we use at home.
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