Making Changes to your Budget

By Gautam Bhatia

As most of you know, the year 2020 was unprecedented. The coronavirus pandemic hit our lives harder than India’s semi-final loss in the 2019 world cup, or Roger Federer’s heart-breaking Wimbledon loss to Novak Djokovic after holding 2 match points.

If some of you think that I’m nuts for even trying to compare Covid-19 and two heartbreaking sporting events – you’re absolutely on the money. I am!

There is no comparison between the two.

Covid-19 caused a rift in our lives economically, with employment rates soaring to record level highs and disrupting our incomes. If that wasn’t bad enough, it has led to the death of millions of people around the world.

In such a time, pre-existing notions and attitudes towards budgeting were immediately thrown out of the window, changes to your existing budget have become an unavoidable necessity.

Even in more sunny times, a periodic review of your existing budget is a helpful exercise to identify potential holes, pitfalls, and shortcomings in your spending.

Let’s look at some changes you can implement to your existing budget starting today:

1. Start with the Basics 

There are two sides to your budget: your Income and your Expenses. If your income has taken a hit due to the current pandemic, consider a simple rule to follow. If your income has fallen by 50%, you must reduce your expenses by 30%, If your Income has taken a hit of 40%, try reducing your income by 20%. A 20% threshold between your reducing income and expenses may need you to rely on savings, however, this gives you a buffer amount of time to get back to your original income without drastically changing your existing lifestyle.

2. Categorize your Existing Budget

Cutting costs may be essential to get through the current financial situation, you may not even know where to start cutting your expenses. First, understand where and how the money is being spent, second, categorize expenses into Fixed/Necessary and Variable/Discretionary.

Fixed expenses include Rent, Utilities, Repayment of Bank Debts, Food, Childcare, and Insurance. For many of such expenses, write to the authority concerned explaining your situation in detail, and you may be surprised at the temporary relief you may be afforded.

Variable Expenses include recreation, entertainment, dining out, investments in the stock market, and shopping. Try to limit or liquidate variable expenses as much as possible.

Categorizing expenses as fixed and variable and further categorizing them gives you a picture of where expenses may be leaking and what you must do to avoid unnecessary expenses.

3. Reconsider your Essential Expenses

Is the weekly visit to the spa or the monthly visit to the barbershop essential to you? Is a daily take way of Indian food from your favorite restaurant seem unavoidable?

The Covid-19 pandemic taught us to challenge our existing pre-conceived notions regarding essential expenses. For the first time ever, we were all forced to get a haircut at home. If restructuring your budget to save is a priority, take a close look at services you might think of as essential, and look for alternatives. I guarantee you; you’ll find a way or two to save a buck!

Restructuring your budget may seem like a painful hassle, but believe me, this often-one-time exercise saves money and time in the long run. The key to being successful is to stay motivated throughout the process. Sharing your new budgeting techniques with your friends and family may turn you into an unpopular nerd. I understand your reluctance!

Share it with the Finllect Community instead!

You’ll definitely be more popular but more importantly, sharing our struggles, learnings and techniques prepare all of us to tackle the coming years – certain or uncertain – with enough insight to live our best financially mindful life.

Till Next Time

Always Remember
Mindfulness Matters!