The art of budgeting – why it’s important and how its done

Who doesn’t like to be financially stable, to be able to spend on important things without worrying where the money is going to come from. Live a prosperous life and ensure a secure future. These are key goals for humans living all over the world. Only the scope may vary depending on what position we hold – a homemaker in charge of our home affairs, an entrepreneur building a successful business or a finance minister managing the affairs of an entire country.

A budget is an important document that helps to achieve this financial stability. Our mothers would scribble at the back of a notebook but meticulously keep a record of all the day’s expenses, before retiring for the day. So that they can decide how much to spend and what to save from next month’s salary. Companies go through the elaborate exercise of budget planning at the start of a financial year. And then at the financial year end, conduct financial audits to see whether the budgeted incomes and expenses were met. The annual budgetary exercise of the Indian Government is a massive macro-economic planning exercise.

There are a few important principles at the heart of it all. The first is to understand the purpose of making a budget. It’s not a document to make once and forget for the rest of the year. The goal of preparing a budget is to evaluate past financial performance and plan for future financial goals. It must be used as a reference to evaluate all our key financial decisions. And make course corrections every time we deviate from the budget too much.

What goes into a budget?
Let’s take the case of a company’s budget for our discussions. The family budget is a simplified version of the same. And the country’s budget is something we citizens don’t have to worry about, thankfully!

The budget preparation is preceded by the financial audit of the previous year/quarter/month. The audit is a report on the company’s Assets, Liabilities, Incomes and Expenses.

The actual budget preparation involves the contribution from all stakeholders. Each aspect of a business is analysed and the forecast of incomes and expenses of the next year are listed down. So if a company has 4 different products, then the budget should clearly show the budget forecast of each product separately. The budget document will have answers to questions like:

  • How much new business revenue do we anticipate for the coming year?
  • What about the debts and liabilities that are pending for clearing that year?
  • A detailed cost analysis – raw materials, labour, administration, marketing etc
  • A clear profit forecast, for the present year and projections for the new couple of years
  • List down the risks and challenges that might affect the budget plan from succeeding

If the budget is for a household, include sections such as rent, education fees, savings, medical expenses, leisure and travel, insurance, taxes and so on.

Managing capital and investments
The top 3 considerations of an Indian householder or businessman when it comes to financial investments is maximising returns, security of investment and minimising tax liability. This is all achievable through long term financial planning. Making long tenure FDs, investing in gold, purchasing land, plant and machinery, intellectual property are the investments for the long term. These instruments will result in further growth of business, guarantee good returns and safety of the investment.

A company may have a strong balance sheet with solid fixed assets and a steady order book. But the biggest reason that companies cite for failure is not long term viability. It is a short term working capital crunch. However, one important point to remember is that short term financial planning cannot be at the cost of sacrificing long term goals. We need both to live a secure and happy life.

How Chit Funds can help in stabilizing your budget
Chit funds are steadily gaining acceptance, especially among the new age investors and self-run businesses. Since it serves as both a saving and borrowing instrument, it comes with the twin advantages of good returns and easy liquidity.

When you open a new chit scheme for a lump sum amount with a fixed 2 or 3 year tenure, you start paying monthly instalments along with all the peers in the same chit group. At any time during the tenure, you can choose to bid for the lump sum and withdraw the entire money with zero debt liability. The later you withdraw, the better your returns would be. But in case of emergency, you have an immediate source of funding right at your fingertips.

Out of all the above options for short term financing, we can see that chit funds are very attractive and viable. The only factor that weighs upon the minds of an investor in the fear of scams and financial fraud. When an investor picks a registered chit fund house, all the government regulations and safeguards come into effect as defined in the Chit Fund Act, 1982. So your investment is as safe in a registered chit fund as in any other financial institution.

Shantala Chits has been in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 24-year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments.

So the next time you sit to make a budget for your home or business, think about including a chit fund scheme in your investments. And set aside the chit fund for a specific expense that is due. That way, your budget is taking care of the source of income as well as what it must be spent on.

Anuradha C

Anuradha is a freelance writer cum corporate trainer in the IT/telecom domain with over 18 years experience. She served in senior technical and management positions in Huawei and TCS for 10+ years. Then gave up the traditional corporate ladder to go solo - in order to escape horrendous city traffic and to be at her own boss!
Anuradha C

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