By Elesha Arora,
Edited by Nandita Singh, Senior Editor, The Indian Economist
It was one of those chilly winter mornings (typical dilli ki sardi) where the sun refused to come out, and so I was craving a nice hot chocolate from Starbucks. With mufflers wrapped around our necks and heavy-duty jackets on, we set out to the closest Starbucks near our college. On reaching there, I gave into temptation and spent an extravagant amount on hardly enough to fill my tummy and which also crippled my weekly allowance. While walking back several thoughts about money constraints and budgeting wandered around in my head; putting it simply, I decided to learn to budget.
However, having a budget is liberating and realistic. It is imperative to have a budget as it is an invaluable tool to help you prioritize your spending and manage your money, no matter how much or little you have. Planning and monitoring your budget will help you identify wasteful expenditures, adapt quickly as your financial situation changes and achieve your financial goals.
Essentially, budgets establish boundaries that help us realise what is the most necessary requirement. Being an economics student I often use the term of ‘economising’ without actually practicing it. In a world where human wants are limitless and choices are in abundance, it is extremely critical to learn to economise to make the most of scarce resources (in this case money). Budgeting,when done correctly, can create a financial haven for one which helps make spending decisions that enhance one’s joy while remaining economical.
Setting up a healthy budget with a set financial formula empowers you to take the first step in creating a life lived from a place of financial strength. It enables you to find that vital intersection between what is important and what you can control.
Economists for years have been advising people to budget. They believe budgeting is necessary because it ensures you don’t spend money that you don’t have; it helps you prepare for emergencies and leads to a happy retirement.
Certain tips that one can follow while learning how to set a budget are:
- Know why you are budgeting
- Have a specific concrete long term goal in mind
- Have accurate data when it comes to spending i.e. record your expenses
- Exercise constraint
- Know when to indulge (carefully)
- Plan on saving money
- Decide on your priorities
- Make the most of your income
Extending your budget out into the future also allows you to forecast how much money you will be able to save for important things like your vacation, a new vehicle, your first home or home renovations, an emergency savings account or your retirement. Using a realistic budget to forecast your spending for the year can really help you with your long term financial planning.
Evaluating your spending habits by developing a budget makes you think about your relationship with money. Like any relationship, to grow healthy and strong you must tend to it diligently.