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Introduction: In a fictional dialogue between Arjuna and Krishna, the discussion shifts from the national budget to the individual’s personal finance. With the upcoming interim budget, Krishna emphasizes the importance of personal budgeting and debt planning, shedding light on their role in achieving financial goals.

Arjuna (Fictional Character): Krishna, On 1st February 2024, our finance minister would be presenting the interim budget, to keep the operations of government running due to forth coming elections. How is the concept of budget relevant to the individual in personal finance?

Krishna (Fictional Character): Arjuna, a lot of people are excited for this upcoming budget, and you can hear discussions about the same at every corner. However, while focussing on the budgeted expenditure of the country and balance of payment of the country many of us ignore the personal budget and debt planning. This month we have discussed various aspects of personal finance which included steps to achieve financial goal, sufficiency of income and planning of expenses. As discussed earlier, mere earning does not guarantee oneself the fulfilment of financial goals. One has to also plan their expenditure for optimum utilization of these earned income. The best way to plan expenditure is to prepare budget and follow the same throughout the month. Planning for debt obligations is equally important as this take up a significant portion of one’s income.

Arjuna (Fictional Character): Krishna, please explain the concept of budget and also tell us the importance of preparation of budget?

Krishna (Fictional Character): Arjuna, in simple language, Budget is a financial document used to estimate revenue and expenses of the upcoming year/month. From National Interest Perspective the government’s financial planning and decisions are based on the budget introduced presented by the finance minister.

From Household point of view, the monthly budget shall hold significant place in the financial planning of an individual. Monthly revenues are more or less known to the individuals and expected expenses shall be proportioned against such income to better organize funds.

The importance of preparation of household budget includes:

1. Identify and Plan for Various Expenses: Recognition and categorization of routine and non-plan expenditures such as children’s education, insurance premiums, investments, EMI for house or cars, and other regular expenses, to ensure all aspects of family expenditure are better planned.

2. Adapt to Changing Lifestyles: It helps in acknowledging the impact of a fast-changing lifestyle on expenditures, such as increased costs for hoteling and hospitality.

3. Regularly Review and Control: Monthly review of expenses helps in bringing better control over expenditure.

4. Teach Discipline and Prudence: Budgeting process can be used as a tool to educate family members on responsible financial practices and the value of living within means.

5. Balance Income and Expenditure: Ensuring that expenditures align with the available income to maintain financial stability.

Personal Budget

Arjuna (Fictional Character): Krishna, Why it is important to plan your debt obligations?

Krishna (Fictional Character): Arjuna, loans are very easily available to individuals these days and many of us access these facility without giving enough thought to its implication on their future expenses. As discussed earlier monthly repayment amount shall not exceed 30% of one’s monthly income. Importance of Debt Planning in financial decision making includes:

1. Avoids Financial Strain: Debt planning helps individuals and families avoid excessive debt that can lead to financial strain.

2. Reduces Interest Costs: Strategic debt planning allows individuals to minimize interest costs associated with loans. By understanding the terms of loans and prioritizing the repayment of high-interest debts, individuals can save money in the long run and allocate resources more efficiently.

3. Preserves Creditworthiness: A well-thought-out debt plan helps maintain a good credit score. Timely payments and responsible management of debt contribute to a positive credit history, which is crucial for obtaining favorable terms on future loans, such as mortgages or car loans.

Arjuna (Fictional Character): Krishna, what should one learn from this?

Krishna (Fictional Character): Arjuna, Budgeting is a very powerful tool in financial planning and the use of same in our day-to-day life can help everyone in bringing better control over our funds. Many of us are also worried about the balance of payment of the country and the figures of exports and imports but ignore our very own loan planning which can lead to various financial mishaps. One shall always prioritize their monthly budgeting and debt planning to ensure a financially planned and worry-free life.

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Author Bio

1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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