Suppose you're enjoying a movie at a multiplex. You notice your colleague there but he is sitting in the premium lounge seats. At that instant your enjoyment is destroyed and you start wishing you could afford better seats. If you know of something better, easier, prettier or simpler but a tad more expensive, you're tempted to go for it.
This is the beginning of human want to which there is no end. This is the reason that the best planned budgets go awry. So, are indulgences the only reason for this? Let's find out.
1. The death of the monthly budget
The problem: You're tired after work. You don't feel like taking the train and you indulge in a cab, buy a cup of coffee from 'Barista', buy premium tickets to that movie or get a nice haircut. Your monthly budget doesn't account for these small indulgences and you're left wondering where you spent that Rs 2,000 (see how small expenses add up)!
The solution: Quite simply, create a separate category of expenditure for it in your budget and allot 2.5 to 5 percent of your monthly budget to these out-of-pocket expenses. Do not give it a rigid accounting standard. Just like going on a very strict diet does not work so also accounting for smaller cash expenses should be flexible.
2. The annual mess up
The problem: Now, you've got your monthly budget corrected but somehow the annual budget still goes haywire. The reason could be that you have forgotten to take into account the annual expenses. You don't buy an 'ipod' every month, have a route canal every month or take your family on vacation every month.
The solution: Some non-recurring expenses are a necessity while the others a luxury. Ideally, set aside some money each month (about 10 per cent of the total non-recurring expense), so you don't feel the crunch during a period of heavy spending such as festivals, tax paying months. If you don't use that money after all go ahead and splurge!
3. The out-of-the-blue hit
The problem: Things were going fine and suddenly your maiden aunt (the one without insurance) has a fall and you're left holding a Rs 85,000 bill! This happens at a time when you blew a small fortune on that cool plasma television.
The solution: Well, there is no painless solution! You can't refuse your sweet old aunt, can you? Others along these lines are emergency travel, broken electronics, forced donation. Don't use your credit card or borrow money from a friend. Instead create a buffer zone of liquidity in the form of cash at home as well as some in a savings account.
So, you see, the bane of the problem is not necessarily that you wanted better seats at the multiplex but that you didn't make a provision for them beforehand.
So, accept the fact that extra expenses are an inescapable fact of life and budget for them. But first do yourself a favour, buy your aunt some insurance, it may turn out to be cheaper than financing her hospital stay next time!
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