this article on budgeting appeared in long back.

INCOME: Rs 100, expenses Rs 99, life is fine.

Income: Rs 99, expenses Rs 100, life is in despair.     (Due apologies to Charles Dickens!)

There used to be a time when it was advisable to have regular health checkups when you 45. Now, it’s closer to 30. But there are no dates when it comes to a financial checkup; it’s a must-do right from the day you take up a job, or a loan.

What is your breaking point?
What would happen if you got a big bill for an unexpected expense? Like the proverbial camel, will this be the straw that will break you?

If you are on a tight leash — say your EMI eats up 45% of your take-home pay — even a small increase in the floating rate can be the last straw.

But if you are on solid footing, you can shoulder daily bills as well as afford, for example, unforeseen auto expenses.

If you are not feeling too confident, it is time to take a closer look at your lifestyle. You may be comfortable today, but if a single expense is all that stands between you and financial disaster, you are heading for trouble. And you need to take steps to avert it.

How long can you survive sans salary?
What would happen if your next salary cheque does not come in? Or even worse, your company told you a great tax saving device — of being on contract? This means a stroke of jaundice or a fracture can mean no income for a month at least!

Will you be evicted from your house?

Will the bank foreclose your home loan?

Can you afford to send money to your parents?

Or to a younger sibling whose education you are funding?

More importantly, how long can you afford groceries? If you cannot live for at least four to six months if you suddenly stop collecting your salary, you have a problem that needs some serious attention.

Create an emergency fund. This is a critical part of a sound financial plan. Put three to six months worth of your income in the bank (floating rate mutual fund for some people).

This is a great way to have cash on hand. It also gives you some breathing room in case your income comes to a temporary halt.

Are you maxed out?
Credit worthiness is another way to gauge your fiscal health. Do you pay your credit card dues in full or do you pay only the minimum amount due? Would you qualify for a loan? If you have high balances on credit cards, or cannot get a loan or another credit card, chances are that the amount you owe and the amounts you earn and save are out of balance.

If you pay for food, basic clothing, CDs, mobile, electricity and other bills with your credit card and pay only a portion of the bill on a monthly basis, you are living beyond, perhaps, far beyond your means.

What about savings and, er, investments?
If you have enough cash at hand to address any emergency expenses, live without an income cheque for six months and still have some credit to tap, the next thing to consider is the amount of money that you are able to save and invest.

Start thinking about saving and investing when you have money left from your income after paying bills, and when your savings account shows some balance.

But if you do not have an emergency fund (cash or a rich dad), are maxed out on your credit card, cannot get a new card and the bank thinks you are “negative” for a new card or a personal loan, then you are in trouble!

The first step is to cut your spending.

So whether you are good at number crunching or not, do get your financial act together and start living on a budget.

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  1. Hi Subra,

    I am not great fan of Robert K “Rich dad,Poor dad” but I still believe investing should be habit and not merely requirement.

    I am referring to the line “Start thinking about saving and investing when you have money left from your income after paying bills, and when your savings account shows some balance”



  2. Excellent article..
    Many ppl know these things… but very less follows it.. I have seen so many IT guys taken a lot of loans (Home, Car, Personal etc) for lavish life style… thinking like they will getting big salaries whole life…

  3. Wonderful piece. Even though you said luck cannot be transferred, only skills can, really learning to write from you.

    Thank you for being a guide, despite refusing to be one!

  4. to be a guide i should think i deserve to be one. I should want to be one. I should get paid to do a job. None of the 3 situations exist.

    I have refused mentoring, guiding, teaching assignments. Training is the only thing I do. In all the other 3 i have to hope that they learn. In training I am sure they are learning…

    anyway there is no Arjun whom I am protecting…so even if I do meet u sometime, I will not ask for your thumb. If you learn from me, thats fine. If you do not, that’s fine too. No expectations, no regrets.

  5. people like me learnt all such good things at the school of hard knocks. i lost my job in the dot com bust of 2000-2001 early in my the usual afflications of EMI etc got nipped in the bud.but it is so easy to be brash and rash when all your early experiences are of 50% salary hikes every year 🙁

  6. Thanks for not asking either payment or thumb! But I do owe you a BIG thanks.

    I’m little curious. How are you sure that learning is happening in training? Like other three, it may or may not happen here too?

  7. Sir
    Shall be forwarding to my group. These thoughts are better than Forward to Seven,Bring LUCK kind of chain emails.

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