Budgeting during your early Career

You can’t plan a future without establishing some goals, timelines, costs & priorities. For example, you need to know where you would like to live after college, what kind of work you would do and what all are the things you would like to have. But there is no point of creating objectives unless you have some sort of an idea that how you would like to achieve the objectives, the order in which you expect to attain them and the timeline for attaining them. So, start by drawing a list of the things you want out of life- job, living space, education, relationships, money. Then, create a timeline for all the goals. And then, priorities your list of goals. For example, you may prioritize that you need education before you go for a job. You need a job before you buy a house for yourself. Then you would buy a car and so on. This is why you need a budget. It is very important for your day to day activities that will help you go smoothly to where you want to go.

In personal finance, there is a famous concept of zero-sum budgeting. In it budgeting is based on a ‘zero-sum equation’. The flow of money can be categorized as Rupees in vs Rupees out. So, start by focusing on your fixed and variable income and expenses. Fixed items include your base bay after taxes and expenses that don’t change from month to month such as house rent, cellphone bill etc. The variable items are overtime pay, bonuses, commissions after taxes as well as expenses that can change from month to month such as utility bills. Also track your discretionary spending, if any, such as the spending during a vacation trip. So, track all your expenses from your income. Calculate money in minus money out. Your objective is to have enough money left over to keep as emergency stash and longer-term savings. The emergency stash should be able to suffice for no less than 6 months of emergency spending. It also needs to cover the cost of your insurance deductibles and health co-pays. Longer-term savings are important from an investment point of view.

Budgeting is not just a one time process. Instead, it is a living process which needs to be continuously tracked, assessed and revised.

The purchase of cars and houses, each can be described in terms of what it takes to acquire, own and operate. The acquisition cost is just the money it takes to make the purchase including price plus the cost of inspection reports, application fees, moving costs and so on. The ownership expenditures include licensing, registration, insurance and taxes, i.e, the fees you pay every year for the privilege of owning your house or car. Finally, the operating costs include fuel, utilities and routine maintenance. All of these need to be budgeted. Some of these expenditures are day to day while others need long-term investments/savings to be spent. So, every thing which has a Rupee symbol in front of it needs to be there in your budget!

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