Humor apart, Formal surveys have indicated that merely by creating a household budget & comparing it with actually increases the annual saving by up to 10 % !
This may sound very fancy, but experts believe that budgeting & variance analysis, instills discipline in the individual thereby sub-consciously increases the actual savings.
Budgeting is an inculcated discipline. Even though it sounds like a time consuming process, once a budget is created, all that needs to be done is compare the actual with the planned figures.
On a day-to-day basis, this comparison barely takes up 5-10 minutes per day. And since you are spending so much time earning that money, wouldn’t you like to see where and how you spend it?
There are other benefits of Budgeting too:
1. It is a good tool to plan for the future. Everyone uses budgeting right from corporates to individuals.
2. It is great for giving the right values to children about saving and planning money. Children should be taught the value of "a penny saved is a penny earned". Scholarship money, birthday gift money etc should be put in a bank account for children so that they can actually see their money grow. If this kind of cash is given to them, there is always the chance of spending it. however, with a bank account, the discipline of saving money begins right from an early age.
3. Budgeting is an excellent tool for planning the future. Unplanned expenses have a tendency to crop up when you least expect it. However, if you create a budget and make a provision to take care of such expenses, it reduces the stress of having to look for money at the last moment.
4. Cash flow management as used by the older generations, using money only for essentials and saving the rest for a rainy day is a credo that served them well. however given the changing attitudes of today, disposable incomes etc, budgeting serves to ground them to the reality that endless reserves are an illusion. Money always has a tendency to shrink when you most expect it to serve your purpose.
A case Study:
JK was a software engineer with a reputed firm. His career graph was looking good with his promotion to team lead within 3 years of joining the firm. As a result, his salary was also increased with periodic assessments. His spending mantra also followed the pattern of 'earn today, party tonight!' He had to be up-to-date with the latest gadgets and fashions. No amount of advising him to budget his earnings and save for a rainy day had any impact on him. Till one day, his father passed away making him the sole earning member of his family. Suddenly, the whole family depended on him for sustenance.
The landlord was making threatening noises to evict the family from their rented accommodation. JK hadn't even thought of investing in a place to call his own. Right from paying the rent to college fees of his siblings, he had to curb his excessive spending and get his budgeting onto track.
A tough year of scrimping and saving every last rupee earned, and today JK is well on his way to buying a flat of his own for his family.
what would you do? Are you really looking for a tough situation to wake you up?
