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A budget is telling your money where to go instead of wondering where it went – Dave Ramsey

Budget is most widely used but least bothered, understood and concerned phenomenon; when we hear about budget the only gigantic numbers and figures come in the mind. Budget is very usual thing I’d say, because everything you do or aspire to do would firstly need a budget estimation, i.e. if you want to buy a home, buy a new car, going on a vacation, admission of children in a reputed institutions, getting children married, life-style, etc every aspect of life would need a thorough understanding of budget – so as with the nation.

Since last few weeks, ‘Budget’ word has been in limelight as India - one of the largest economies of globe was to announce its budget for 2021-22.

Let’s try to understand the Budget 2021 via few simple Key Takeaways 2021 for Personal Finance

Credit: Deepak Dhabalia, DD’s Real Wealth Maximiser

It is said that failing to plan is like planning to fail; and when it comes to financial planning then why not to prioritize it? Young generation of today wants to enjoy everything and experience everything at present only, they believe not to postpone joy ever in life and therefore the moment they start earning – their major earning in the initial days is being consumed in living the lifestyle which is considered lavish or at least look like prolific. There is nothing bad in aspiring for abundant standard of living and luxury in life but that should not be at the cost of unplanned future.

With the rise of the boundless opportunities now days the uncertainties, volatilities & complexities have also risen tremendously and that is taking a toll of your financial stability if not planned well in advance. I have seen many people living a copious life but ending up in a misery only because of the disillusionment towards the importance of the proper financial planning.

In the initial time the person is not loaded with much of the responsibilities but gradually he has to look after parental responsibility, spouse, children, etc and for that much needed pre-plan plays a pivot role. In this article certain golden rules are shared which will help you saving since 1st day of your 1st job without even affecting your aspired lifestyle.

  1. Make a budget: Saving needs a disciplined mindset first so decide a budget how much you want to save every month. It can be even a small fraction like 5% of your monthly income. If you are not able to decide the percentage to be saved then do the reverse calculation keeping your goals in mind; for example if you want to buy a car in next 3 years and for that you will need hard cash (excluding the finance available at that time for loan) of approx 3 lakhs rupees then simple calculation comes 3,00,000 / 36 months = 8334/- rupees approx. So you must save 8334 rupees a month to achieve your goal. The exciting thing is that you can actually invest this amount every year in various schemes like SIPs, mutual fund, equity, or simply the recurring account which will earn you handsome ROI and that will add up in your aspired amount at the end of 3 years.
  2. Prioritize needs and plan for liquidity: Many people have different priorities and needs so you also make a list of priorities; this list may include the financial obligations to be set off first i.e. education loan or something like that. If you are a travel buff then you can save some money every month and plan a fantastic semi luxurious solo trip at the end of the year. This priority list may also include provision for further study, security, charity, etc. but make sure wherever you invest your money has the provision to be liquidated easily else you will have money on paper but they will be of no use to you in your tough time.
  3. Invest for long term since beginning: It is said that start early, drive slowly and reach safely. The same goes perfectly true for financial planning. The earlier you start planning & saving & the longer period you invest will yield higher ROIs. Let’s understand this through an example – assume that if you start saving at the age of 40 years and investing 10,000 rupees a month which earns return of 12% then at the age of 60 years you will get 99,91,000/- rupees but if you start just 1 year prior to that i.e. at the age of 39 years investing 10,000 rupees a month and same return of 12% then at the age of 60 years you will get approx 1,13,00,000/- rupees. So just one year will make you lose 13,95,000/- rupees. Now if you consider the average return of 15% instead of 12% then this lose would be 25,00,000/- rupees instead of 13,95,000/- rupees. This happened because of power of compounding. Remember compounding is the 8th wonder of the world.

Lastly the Bonus formula for you for wiser saving pattern:

Income – Expense = Savings   - The wrong & dangerous formula.

Income – Savings = Expense – Should be the ideal formula.