We all know how to create wealth do we not?
Spend less than what you earn.
Save till it hurts.
Invest wisely, Insure adequately, Track honestly, …and bingo richness is all yours!!
However, you may not know how this happens on a day to day basis..what do you do?
You make Budgets. Good old boring budgets. Now.
Ok. You hate marking big elaborate budgets. Make simple ones:
Split your OUTGOINGS into 4 categories:
- Compulsory payments: Mortgage payments, rent, car emi, school fees, society charges, – these are strictly not negotiable in the short run at least.
- Variable payments: monthly groceries, food, clothing, hobbies, house hold expenses, eating out, some fun money
- Save Just to spend: some savings to meet the annual payments – life insurance premium, car insurance, festival expenses, family wedding gifts, ..some people can never seem to have money for such once in a while expenses. Create a Recurring deposit or a series of fixed deposits, or keep in a liquid/short term debt plan.
- Must meet short term goals: 4 year old kid will go to school next year his fees, sister’s expenses – providing dad the shortfall amount, car replacement,
- Must meet long term goals: kids education, buying a house, retirement, kids weddings….be clear how much you are going to set up for each of these goals.
If you can classify all your cash flow into these heads…and you will be able to manage your expenses better. You should allocate for 1, 3, 4 and 5. Once you do that whatever is left is for 2. This is also called ‘Paying Yourself First’. http://www.subramoney.com/2013/12/pay-yourself-first-means-what/
You pay all the compulsory payments, retirement goals, children goals,….etc. after that you spend on your IMMEDIATE NEEDS. If need be you downsize goals, assets, …etc.
Simple right? Now go and make it easy.
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