The Union Budget is round the corner, but is your budget sorted?

• Just like the Union Budget, your personal budget helps you allocate your income properly.
  
• A budget helps you plan your cash flow and make adjustments where required.
  
• A budget also helps you to plan for your important financial goals.
  

Only a few days are left for the Union Budget and everyone is talking about it. As we all know, a budget is one of the most important exercises of the government and it affects the lives of the citizens and the entire economy.

By its nature, the Union Budget is a statement of the estimated receipts and expenditure by the government for the country as a whole.“Similarly, your personal financial budget/ family budget refers to allocating your income in a planned way towards the expenses like household, lifestyle, dependents, insurance premium, debt repayment, etc. and channelizing savings into suitable investment avenues. A family budget is a part of your financial plan,” says Arijit Sen, a SEBI-registered investment advisor and co-founder of Merry Mind, a financial advisory firm.

The Union Budget is focused towards the country's economic development, reducing inequalities of income, efficient allocation of resources, etc. “To the same degree, preparing and sticking to your family budget is crucial for your family so that surplus funds can be invested to achieve your financial goals on time,” says Sen.

Let us take a look at why, just like the Union Budget, it is important to have a personal budget.

Calculate your net income and evaluate your expenses: Governments mainly earn through direct and indirect taxes while you may earn a salary or earn business income. There could be other sources of earning too. It is important to get an idea of your net income.

Then you need to have an idea of all your expenses. The government spends its money on education, healthcare, building infrastructure and defense among other things. Your expenses would include rent/EMIs and expenses on food, clothing, healthcare and so on. Here, it is important to make a distinction between non-discretionary expenses, like rent, groceries, insurance premiums etc ) and discretionary expenses like eating out and spending on luxury items.

Cash flow management : You need to pen down your cash flow and tally it with your family budget at periodical intervals. A budget is unlike your cash flow but projects how you allocate your cash flow.

“Monthly cash flow statements reflect how the cash flow was actually done. Accordingly, you can notice the difference between the projection (budget) and the actual amount as per your past records (cash flow),” says Sen. In case you are struggling to meet your expenses, it means that you need to cut down on your discretionary spending.

Identify your financial goals: A government’s goals would include even distribution of resources, reducing inequality, employment and economic growth and so on. Your goals on the other hand would include buying a car ,a house and saving funds for your child’s education and retirement.

“A budget helps you map out your goals and work towards achieving them. If you just save aimlessly, you will never save up enough money towards your goals like buying a car or putting a down payment on a house,” says Anant Ladha, founder of Invest Aaj For Kal, a financial planning firm.

Manage your debts: Governments can borrow large sums of money to fund their expenses. While we cannot borrow as much, we take loans to buy cars, houses or other items. An important part of your budget should be about how you pay off your debts and manage them.

“One popular rule of thumb for building a budget is the 50/30/20 rule. The rule is a budgeting technique that will divide your net income into three categories. It states that you should allocate 50% of your income toward needs, 30% toward wants, and 20% toward savings or paying off debts. How you allocate spending within these categories is up to you,” says Ladha.

So, just like the Indian Government, it is important that you plan your budget for 2023, if you haven’t already. A good budget will give your control over your money and peace of mind.

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