This is part 2 of the Series – Create Wealth – A DIY (Do-it-yourself) way. In this Part 2, we shall focus on taking it forward and get to know more pillars of Wealth Creation. This time, we cover Budgeting. Budgeting is important because it takes you to Savings. So, with a budget, you can know your saving potential.
In Part 1, How to Create Wealth? A DIY Series to Learn Wealth Creation Basics- Part 1 we learned the first step of wealth Creation- Calculating Net Worth. We also identified liabilities and assets and their classifications. Hope you now know where to start and focus.
Obviously, you need to increase your Net worth. And the best way is to invest your savings. But how to arrive or know what we save? Is the current savings ok? Or you can increase it? Budgeting will answer all these important questions. So let’s start learning Budgeting.
When it comes to finances, people generally fall into the following groups. Where do you fit in?
- Planners control their financial affairs. They know what they are earning and spending. They budget to save.
- Strugglers have trouble keeping their heads above rough financial waters. They find it difficult to budget to save.
- Deniers refuse to see that they’re in financial trouble. So they don’t see a need to budget to save.
- Impulsive seek immediate gratification. They spend today and let tomorrow take care of itself. They couldn’t care less about budgeting to save.
Knowing what kind of financial manager you are will help determine what changes to make. To maximize your wealth-creating ability, you want to be a planner, like Gauri.
Gauri is a single parent with one child. “I have to budget in order to live on my modest income. I have a small notebook I use to track where every dime goes. Saving is very important to me. When my son was born, I started investing every month in a mutual fund for his college education. I am proud to say that I control my future. I have bought my own home and provided for my son, and I’ve never bounced a check. You must have common sense regarding money!” A proud mother and a saver.
Manu, by contrast, is impulsive. Manu has a good job, makes good money and lives a pretty comfortable life, but her bank statement tells a different story. She has no savings or investments, owns
no property and has no plans for retirement. Plus, she’s got a lot of credit card debt, lives from paycheck to paycheck and doesn’t budget. A happy go lucky spender.
You can choose to be like Manu, or you can follow Gauri’s road to wealth creation by learning to budget and save.
A budget allows you to:
- Understand where your money goes.
- Ensure you don’t spend more than you make.
- Find uses for your money that will increase your wealth.
To develop a budget, you need to:
- Track your daily expenses.
- Calculate your monthly income.
- Determine how much you spend on monthly bills.
One day, Manu, the impulsive, realized that to create wealth she had to become more like Gauri and plan her financial future. To start, Manu analyzed her finances to see how much money she made and how she was spending it. Gauri chipped in to help and shared her daily expense sheet that she makes to note down daily expenses:
She also shared the monthly budget sheet that she makes after adding the figures of daily expense sheet. This looks like this:
Budgeting is a simple tool to know and works on increasing the disposal income. I highly recommend that you start making a budget for your household and you will feel the difference in your life.
The series continues next week with new insights on wealth creation. Stay Tuned.
I also wrote an interesting article on Budgeting sometime ago: Angelina Jolie & Budgeting. Do read it.
Meanwhile, share your mind and ask if you have a query.