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You are here : IndiaNotes >> Classroom >> Planning & Budgeting

Family Budget: Foundation to financial Plan

Pankaaj Maalde | 13 Aug, 2012  | Follow Author | Add to my Favourites 


We all are aware that on every 28th February, Finance Minister presents budget in the parliament. The exercise is done months before and on budget day FM makes it public, where the money has come from and how it is spent in the current year. Budget also tells us what the estimates are for the next financial year. This is very important for all of us, whether it’s individual, corporate or institution, to know the steps taken by government to take economic growth on fast track. Same way every businessman prepares profit & loss account and balance sheet at the end of financial year to know how healthy his business is. One can’t imagine any country or business runs without proper budgeting.

Like wise individual family budget is also most important and is the basic and foundation of individual financial plan. It is really about knowing how much you earn month to month and how it is spent in day-to-day life expenses. A good budget can help you in keeping your expenses as required and keep it on right track. One should write it down on daily basis and know where money is spent. Unless you write it down, you will never be able to formulate an investment plan, as surplus is not known to you. If you don’t know how much money coming in and where it goes, your road to financial success will be a difficult one.

Budget Allocation Guidelines for middle class families:

1) Fixed Expense:
Your fixed expenses should be in the range of 35 to 50%. Fixed expenses include household expenses, education, medical, utility bills, fuel, conveyance, repairs & maintenance.

2) Insurance Commitment:
Your total commitment towards life insurance should be around 7%, health insurance including disability insurance around another 7%, household property another 1%. Insurance expenses for the year should be around 15% of your annual income.

3) Retirement Corpus:
One must save minimum 10 to 15 % of total income for retirement. Living longer is also a big problem and has to be addressed at earliest.

4) Long-term investment:
Money set a side for education & marriage of children’s, home purchase or major renovation. One must keep a side 15 to 20 % for his future goals.

5) Vacation and Lifestyle expenses:
Your annual vacation and life style expenses should also be restricted to 10% of your total income.

6) EMI:
Borrowing has become very common now a day for home purchase, car, and education. EMI can spoil your financial plan if your calculations go wrong. One must be very careful before taking any loan and EMI should not be more than 35% of your income.

Sample Budgeting Planner:

Particulars

Total - Monthly

Total - Annual

Net Take Home Salary

 

 

Business/Profession Income

 

 

Rental Income

 

 

Investment/Other Income

 

 

 

 

 

Total Inflows

 

 

 

 

 

Household Expenses

 

 

Food & Grocery

 

 

House Rent / Maintenance

 

 

Conveyance & Fuel

 

 

Medicines / Doctor

 

 

Electricity / Water / Mobile etc.

 

 

 

 

 

Children's Education

 

 

 

 

 

Lifestyle Expenses

 

 

 

 

 

Travel & Vacation

 

 

 

 

 

Loan EMI's

 

 

Home Loan

 

 

Vehicle Loan

 

 

Educational Loans

 

 

 

 

 

Insurance Premium

 

 

Life Insurance

 

 

Health Insurance

 

 

Other Insurance

 

 

 

 

 

Total Outflows

 

 

 

 

 

Surplus available for investment

 

 


It is important to write down monthly income and expenses year after year to know the exact surplus available month on month for investment for future goals. You have to be very careful if you servicing any EMI for loans taken.

Pankaaj Maalde is a CFPCM , Head – Financial Planning at ApnaPaisa. He can be reached at pankaajmaalde@apnapaisa.com



About Pankaaj Maalde

The author is a Certified Financial Planner by profession. He currently works as Head - Financial Planning at www.apnapaisa.com and makes Comprehensive Financial Plans for Clients. He is IRDA and AMFI Certified and has over 11 years of experience in the field of Financial Services with special expertise in Life Insurance and Mutual Fund products.

 

The author can be contacted at pankaajmaalde@apnapaisa.com.

 

 

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. The author does not accept any liability whatsoever arising from the use of any of the above contents.

 



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