Why can't we stick to our budget plan?
Did you know that the word budget comes from the French word 'bougette', which means a small leather purse? While most of you would not have known the antiquity of the term, most of you would understand the concept of budget, which is a financial plan of income and expenses over a specified period. The problem, however, is that most of us cannot stick to our budget plan as we might like. In this article, we try to understand the primary reasons for this mismatch and hopefully learn from these mistakes and improve our budgeting skills.
Mistakes in budgeting
The first and foremost mistake that most of us make is that we do the budgeting incorrectly. Most of this would be on the expense side. For instance, you might forget that you have an upcoming payment towards insurance that is not accounted for in the expenses. Similarly, you may decide to take a spur-of-the-moment trip with your friends and family, which throws your budget into disarray. There might be some mistakes in accounting for your income as well. Some of the major ones could be not accounting for the tax deducted from your income, especially for salaried individuals.
Thus, you must get your budgeting right cause that's the foundation of your budget, failing which the entire plan goes topsy turvy. It is like the quote from Aristotle, 'Well began is half done.'
Not having an emergency fund/insurance
Calamity, natural or unnatural, can occur to anyone at any time. The classic case was seen during the Covid-19 pandemic and lockdown when scores of people lost their incomes due to being laid out from work or business losses. This temporary income loss strains your entire budget, especially if you don't have an emergency fund. In terms of essential financial planning, it is always important to keep at least six months to 1 year of expenses in this fund to ward off such turbulent times.
Similarly, it is also essential to have insurance for oneself, both life and medical insurance. This protects yourself and your family from the financial loss of either outflows or loss of income because of medical emergencies. Again, going back to the Covid-19 health scare, hospitalisation caused a financial burden to the affected. A health insurance policy reduces the overall cash flow and thus reduces its impact on the budget.
The third important aspect of not sticking to the budget is the lack of active monitoring of your budget plan. You must have a hands on approach to the budget plan by not only planning the budget but also regularly monitoring the progress through new-age applications or going old school and jotting it down in a notepad. This helps you keep track of the budget and keep you involved with the activity, helping you remain excited and motivated during the entire process.
Active monitoring also helps in tweaking the budget plan basis the income and expense activity, thus fine-tuning it to the ongoing situation. However, it would help if you did not make significant changes to the original budget plan.
It is essential to stick to the original thought-out plan while also actively monitoring it to remain agile to the changing dynamics.
Budgeting is an important aspect of any individual's life. It helps an individual remain aware of their financial situation and thus be in control of it. Without a budget, the entire financial journey can turn haphazard, affecting an individual's life journey. However, just budgeting is not enough. It is important to stick to the plan and avoid the mistakes outlined in the article to remain on track with your budget.
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