Engineer's Finance

How many of you think of budget? Do you think of budget as a means to attain the “Financial Goal”? Is it really worth doing a budget? Can you stick with your budget? These questions were always in my mind regarding budget. I have figured out that Budget indeed is a good way to attain the Financial Freedom.

Budget is derived from the French word bougette which means purse. It refers to a list of all planned expenses and revenues.

Here is a simple method to begin your budget. I use GNUCash for preparing my budget. It is a free tool that is available. It is always good if you can prepare a budget in a yearly basis. I am not successful yet in doing it. I prepare my budget based on monthly expenses and I would suggest you also to follow on similar lines rather than going for yearly budget. Let us start with simple steps. If you follow these simple steps then I am sure you can budget effectively.

Assess your expenditure: List your expenses however small it is like eating out, going for movie, buying chocolates and the like. If you have any debts or rent; make sure you note everything. Have an elaborate list to ensure you note every penny that you spend. For ex:

Electricity ____________ _________

Petrol ____________ _________

Water & Sewer ____________ _________

Phone (Landline) ____________ _________

Phone (Cellular) ____________ _________

Cable ____________ _________

Internet ____________ _________

Groceries ____________

Eating Out ____________

Hair Cuts ___________

Clothing ___________

Books & Magazines ___________

Movies/Concerts ___________

These are some of the things that I could think of. You can always add to the list. The list has to be exhaustive in order to make all the possible expenditure noted.

Income: If you get only your salary as your source of income then you need not bother much. But if you get your source of income from more than one source then make sure you note down every source of income.

Expenditure V/S Income: Ensure that your expenditure is never more than your income. If your expenditure is more than income then cut down the expenses in such a way that it does not affect you in a big way. For example: it is better to stop eating outside regularly if that is the main reason for your increased expenditure. Once that is done, you will have a vague idea of how much money you have every month.

Debt Reduction: If you have any debts then I would suggest closing it as soon as possible. Save up and close the debt. This is a good way to improve your financial conditions. If you have more than one debt then it is better to start with the one which has the highest interest rate.

Saving and Investing: Start saving and investing your hard earned money. Have an emergency fund. It is always good to have at least couple of month’s salary as emergency fund. Think over various options of saving and choose the best one that you think is suitable for you. After properly learning about the various investment vehicles, start your investments. Think before you committing anything in investments as you know that investments are risky when compared to saving.

Keep refining your budget every month and stick with your budget. It is very hard to stick with the budget but make a conscious effort to do so. If you start budgeting precisely then I am sure you are on the way to your financial freedom. I always keep changing my budget every month and I started doing it for fun. I suggest you to do the same way. It is fun to budget and following is little difficult but I am sure I will be successful one day.