Shreekant & Geeta had been married for 5 years now and from the constant franctic calls that I had started getting recently from Shreekant, I figured out that something was amiss on the personal financial front. Both had decent salaried jobs and nearly a year back they purchased a home in the distant suburb of Mira road, near Mumbai, by availing a home loan of around 20 lakhs. They had a kid who was just 3 years old and was being looked after by a full time maid.

I felt that it would be better to meet this couple at the earliest and conveyed the same to them. Both Shreekant and Geeta met me on a Saturday evening at my office with all their personal financial papers.

After the initial discussion and on further probing, I realized that this couple did not have any form of budget in place. They could tell me how much net income they earned but could not figure out how the entire income got exhausted month after month, sometimes forcing them to use their credit cards excessively to meet  the shortfall.

I suggested them to prepare a simple cash flow statement which contained Income on the left hand column and expenses on the right hand column. Expenses were further broken into Fixed and variable. I explained them that expenses such as Home loan EMI, Car loan Emi, rent, school fees, maid salary, etc are fixed expenses where the amounts did not change month on month, while groceries, utility bills, petrol/ travel, medical, etc would form the variable expenses since these amounts would change every month.

I could see the couple sweating it out to figure out the various expenses since they had never taken the trouble to make a note of it on a day to day basis. After nearly half an hour they were able to fill the monthly expenses details.  I further suggested them to break up all the one time annual or half yearly expenses such as Insurance payments, vacation etc into monthly so we could get an idea of the exact monthly outgo.

After some debating and arguing between the couple they were able to write down the complete monthly expense breakup.  Now things were clearer and we were able to figure out the exact monthly expenses.  It was now time to do a simple subtraction of expenses from income and surprisingly we discovered that there seemed to be some surplus too. But we figured out that due to non budgeting of expenses and frequent use of credit card, most of the time the minimum balance on credit card was being paid which resulted in the card issuing bank charging them high interest and thereby leaving them with no surplus at all. A few months of monitoring of the expenses would help them to arrive at the exact figures and enable them to plan better.

Shreekant shared with me that when he was a kid; he remembered his father would hand over a sum of money from his monthly salary to his mother who being a housewife would manage the entire household expenses within the money provided and in spite of the fact that there was only one earning member in the house, still all the basic requirements of the family were met comfortable. Today things which were luxuries earlier have become necessities and there are so many expense heads which if not tracked and monitored, would land a majority of the couples in a similar situation as of Shreekant and Geeta.

Geeta realized the importance of the above simple exercise and promised me that both of them will commit themselves to writing their monthly budget from here on.  They also understood that it was more prudent to withdraw the required budgeted cash from the savings account in the beginning of the month, thereby avoiding frequent and unmanaged withdrawals during the entire month.

Though Budgeting is a not a very exciting activity but it is the most basic step of financial planning. It is also advisable to review your budget on a regular basis to make sure you are on the right track. So like Shreekant and Geeta, let the budgeting begin!

Budget sample