Money, You & Budgets

by Pria Masson Tanwar

Tue, 04 June 2024

Money, You  &  Budgets

Last month, Pria Masson wrote about how we all have a unique relationship with money and how that relationship needs to be understood and balanced in our work and personal lives. This month, she takes that idea forward into how we can use that idea to plan our finances and tackle that unpleasant activity called “budgeting”. 

Someone recently asked me what the most basic thing was related to money that I would like to tell my child. My answer was “that it is a finite resource, and its usage needs to be thought through”. This very rudimentary idea does shape our relationship with money, irrespective of how much money we do have. The idea that it is finite and needs to be managed is a universal truth. 

How do you begin?
The first step is to understand the difference between basic needs or essentials, followed by the wants (the things that are nice to have but negotiable) and finally the desires or the luxuries. Where each expense sits, differs with your life stage or the stage of your business. For example, for parents with preschoolers, on a tight budget, school fees are not yet an actual essential. When the child grows to school age, it shifts the bucket it sits in. For your business, a capital expense needed to expand the business may seem essential, but, if you can manage at status quo, it’s a “nice to have”. On the other hand, that same investment, if linked to a big opportunity of growth that is time bound, becomes essential. 

What is not tracked, is rarely controlled. 
I cannot stress the importance of tracking and knowing your expenses or costs as well as your income sources, the timelines of payments due etc. This is again true for business and personal finances. It is undoubtedly a tedious task, and the desire to just keep it in your head, or just spend as things comes up or any of the other ways that money is managed without tracking, eventually it is likely to catch up with you. If you do not identify and track, you are unlikely to know what your own “finite” number is, and, without that, living within your means, can be tricky and that is how personal debt, financial stress and personal stress all adds up. 

What about contingencies and unforeseen expenses?
Whether for your business or for your personal life, it is prudent to aim for a minimum three to four months of “only essentials” existence. Give yourself that runway and do not touch that money. The fact that you can survive, gives you breathing room and the space to take those hard decisions you may need to take, or to wait for opportunities that appear in the horizon.

About going overbudget, credit cards, self-funding, etc.
When you feel you need money for an activity that’s not on your budget and you need to draw from another source, what then? Then you do what you need to but remember to weigh your options knowing that something will be sacrificed today, for a benefit. That could be lower savings, it could also be temporarily taking money out of another bucket and placing it where you need it now. But remember to put a timeline to when you will restore the balance. Without that, the problem can snowball. In case of businesses as well, under duress, you can fund it with personal funds or a loan but know when it’s time to cut your losses – and set that time up front if you can.

This seems like a lot of “do’s” and “don’ts” but it is simply my personal framework to help people manage their finances. There are many ways to do these things; this, is just one. My philosophy is that being able to identify, manage and plan for finances is empowering and reduces stress. It frees up the daily mental space that goes into every payment made. Make that time and mental space every few months and give yourself the space to take daily strategic decisions. It seems evident that it goes a much longer way for your mental and financial health.