One should always try to contain their expenses to within 70 per cent of their income and maybe even less during the initial years of their working life. The challenge in doing so lies in consistently being able to do this.
Here, preparing a budget and planning for your expenses makes a big difference. The most common experience faced by people is to have a lot of funds in their account at the start of a month and then trying to make ends meet towards the end of the month.
One simple approach to managing such situations is to actually plan and live for the week.
For the sake of this example, let us suppose that you earned Rs 30,000, the first step would be to put away Rs. 10,000 as a buffer. This can be done by either exercising strict discipline or one can start some kind of systematic investment wherein this money is not only kept aside but also grows over a period of time.
The balance of Rs 20,000 should then be allocated to the four weeks of a month which then comes to Rs5,000 per week or just over Rs700per day. Although this might not sound like a large sum of money in today’s context when a trip to a cinema or a pizza could cost as much as Rs 500, you need to keep in mind that the entire sum need not be spent every day and that is why the weekly approach is suggested.
Planning ahead
Now, that you know the amount of money you can spend, the next step is to plan all your expenses and map it to this income available. This is a simple but extremely boring task. This is the first step towards wealth creation.
A few things which people tend to ignore when budgeting, which always comes back to bite them in an emergency, is not allocating for unexpected expenses, especially medical emergencies.
It is far better to plan and allocate some sum of money towards all possible expenses.
The next step is also quite simple but very difficult to execute. Have envelopes for each of the expenses that you have planned for and put the required amount into the envelope at the start of the week. Therefore, you would have to exercise self discipline with regard to spending on your credit or debit card.
Word of caution
So, should one give up debit or credit cards?
Not at all. Debit cards are your back up and for emergencies. Credit cards actually offer you a free rolling credit if used smartly and properly.
It is always recommended that you keep your debit card in the least accessible part of your wallet. Apart from being safe, it would also make you think twice before taking it out for any expense. Ideally one should take it out once a week to draw their week spending money and then put it away for the rest of the week.
Credit cards is another matter entirely and should be used, but with care and caution.