The objective of this article is to show you the practical path to achieve financial freedom and to discuss the importance of preparing a monthly family budget. The article is divided into two parts. First we will discuss the Rule for financial freedom and in the later part we will discuss the importance of preparing a monthly family budget.
- Rule for Financial Freedom
First tell me what comes to your mind when you hear the word “Financial Freedom”? Is your answer like this? – No work and even money is flowing towards you. If that is your answer, then I can call it “Day Dream”. It is a Day Dream at least for those who don’t have any type of inherited property in their name. So, be practical in your thought patterns and your financial day dream.
Let’s understand the Rule 20-10-70. It means when you earn Rs.100, first 20% of your earnings should go for investment then second 10% of your earnings should be used for savings and the balance 70% of your earnings would be used for your household expenses. So it can be presented in following formula:-
Earning = Investment + Savings + Expenses
i.e. 100 = 20 + 10 + 70
The concept of financial freedom is itself highly personal and subjective. Even then the above Rule can be followed by anyone. If anyone think that it is highly aggressive depending upon their monthly income then they can changed it to
100 = 10 + 5 + 85
i.e. 10% of your earnings should be part of your investment, 5% for savings & balance 85% would be used for your household activity.
Unless we start, we can’t experience it. So, 1st we have to take action. Many youngsters dream of achieving financial freedom early in their life. Achieving financial freedom is a process and it is not a daydream. One must follow the process and that is too with consistency and patience.
The process consists of taking control of our own spending behaviour, our thought patterns, positive approach and following the Rule of 20-10-70 on a consistent basis.
So let’s focus on the Rule and take action. Which definitely leads you to your destination of “Financial Freedom”.
Now we will move to our second part of the article.
- Family Budget
Budget is prepared to know exactly where we are heading. How many of us know where we are heading in terms of our financial future? 90% of us just don’t care or bother about this.
Not having budget and planning about your financial needs leads you to
- Overspending
- Spending on unimportant things
- Stress
- Relationship problems
- Unsatisfied life
So, if we don’t want to be a victim of the above mentioned things then we must prepare our monthly family budget and then act accordingly.
Steps to prepare Family Budget:-
- Collect & analyse data:-
Before preparing a budget we must have all the relevant data. Like our goals, expectations, our income and our expenses.
- Prepare Budget:-
Once we gather all the data, we must start preparing our budget based on the analysis we have made. Prima facie Budget has two important terms. One is Income and second is Expenses. However, for better understanding find below herewith basic format of Family Budget:-
Monthly Family Budget:-
| Amount | Percentage (%) | |
| Earnings / Income (A) | xx | 100% |
| Investment | x | 20% |
| Savings | x | 10% |
| Household expenses | x | 70% |
| Total (B) | xx | 100% |
And the equation: (A)=(B)
Whenever we earn, our first allocation should be towards our investment, followed by savings and then expenses. What many of us do is exactly opposite of this. i.e. we first give priority for expenses and then to savings or investments, if anything remains after expending. In such a scenario nothing is left for savings or investment. Therefore, we must start with investment, savings and then expenses i.e. follow the Rule of 20 – 10 – 70.
This is all about the importance of preparing a monthly family budget. So, don’t wait and start preparing your Budget.
Hope this write-up serves you.
Be Blissful!
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