Budgeting our resources is an essential for achieving our life’s purpose and aspirations.
Without a budget, how can we efficiently achieve our goals? What will the economic cost be to reach your objectives? How do you project those costs into the future? How will you earn enough to pay for it all?
This is why you need a financial budget for your household, your family, and your business. Indeed, every project we desire to undertake should have a budget.
You may be asking, “What does money, budgeting, and financial management have to do with spirituality and being a sadhu?” Swamiji gives perspective in the video below – watch now:
Sadhus are “efficient ones” who take responsibility for all aspects of their lives. One of the most important responsibilities each of us has is not to become a burden to anyone else.
Regardless of your situation, the budgeting concept – understanding what we have and what we need, is just as important to a sadhu as it is to a householder or a business person.
While this article is about financial budgets, the budgeting concept can literally be applied to any resources that are limited, in which efficient allocation improves the quality of life.
As a point in fact, I can’t ever envision a point in time when we would want to live without a budget. As sadhus we will have many kinds of budgets with which we will need to comply. In addition to our finances, we will need to budget our energy, budget our voice, budget our asana, and budget our sleep.
Our goal is to be able to make contributions to all of our savings funds as quickly and efficiently as possible, so that we can put that money to work to help offset and eventually to provide for our expenses.
Before diving into building a budget, it is helpful to consider some financial planning tips which apply through life’s various stages.
Points to Ponder: Budgeting Through Life’s Stages
We will also require to figure out how much money can we afford to budget for discretionary expenses: socializing, a movie, or other non-essential expenditures.
When we get our first job, we will probably be among the lower-paid employees, living a frugal existence or life style. It will take some time before we become good enough at our job to earn some discretionary income.
At this early stage in life, it truly is important to assess if we have extra income or are we in deficit.
We must begin to create a savings fund, and most probably we will need several different kinds of savings accounts.
We will need a rainy day account, an intermediate term contingency fund, a catastrophic insurance fund, a capital expenditure fund (like a downpayment for a new car or new house), and a retirement fund.
As we earn more money, we should invest in these different savings accounts before we start “living it up,” or abandoning the principles of living within a budget.
Even before enjoying ourselves in selfish abandonment, we will want to pay ourselves first, by making contributions into our investment funds, so that in the future we can hope that the growth of these funds will help provide for us as we move into retirement.
Four Easy Steps to Financial Freedom
Are you ready to begin? This is a roadmap of four easy steps to gain control of your money and create lasting financial freedom.
We first need to create an accurate projection of both revenues and expenses. Whether we want to live the life of a simple sadhu, or we want to achieve more sophisticated measurements of success, the roadmap is the same:
1) Understand your income: Document how much money you make and how frequently you earn it
2) Project your expenses: Start with your most basic living expenses and then add in your “nice-to-have” items
3) Assess your Net Income: Do you earn enough money to cover your basic living expenses? How about to take care of debts and obligations both now and in the future?
4) Develop a Financial Plan: Determine how to optimize the use of surplus funds or how to minimize a deficit.
Start by applying these four steps to your current life situation. Then, project the income and expenses into a future point in time – say five years, or ten years. This “future state” should reflect your vision and goals.
Ready? Let’s begin!
Step 1: Understand your Income
How much income do you make right now? Given your stage in life and your current career path, what is your income expected to be in the future?
For example, are you an heir to a very wealthy estate and given an allowance every month and can spend on anything you want? Or do you have more modest means for which you have to plan and budget what you will spend?
The first step in the budgeting process is quite simple – list all of your sources of income and project it into the future.
Open up Worksheet 1: Your Income, download it as an excel file onto your computer, save it, and fill-in all of the Income you currently generate:
(Note: Having trouble with excel? You can also access the template in printable PDF format: Worksheet 1, Your Income)
After assessing your current situation, use the same spreadsheet to project a future state – say 5 or 10 years down the road. Consider applying a salary increase every year. Include the potential for a new job or promotion. Any other sources of income that can be reasonably expected should be included.
NOTE: To perform Step 3, both income and expenses need to be on an annualized basis. The worksheet provides the column and instructions on how to do this.
Step 2: Project Your Expenses
The second step is a bit more tedious, but well worth your time. Often we learn a lot about our spending habits when we become aware of our behavior.
Begin by listing all of your expenses. Whether you list expenses on a daily basis, weekly or monthly, we must create an accurate projection of what it costs to do what we do.
Every day we eat – we need a category for food; we sleep some place – we need a provision for shelter; we need to have some means of transportation.
Make sure you include all expenses – even a sadhu must have a few flowers and incense sticks! And don’t forget to budget for that occasional trip to the Devi Mandir!
A fantastic way to do this is to use Worksheet 2: Your Expenses. This is an excellent template designed to keep track of all the money that you spend.
Open it up, download it, save it, and fill-in your expenses:
(Note: Having trouble with excel? You can also access the template in printable PDF format: Worksheet 2, Your Expenses)
Start by tracking monthly expenses, then decide which expenses are necessities and which expenses are luxuries, which expenses are recurring and which expenses are occasional.
After assessing your current situation, you can use this very same spreadsheet to project the expenses into your future state, ensuring that you use that same future time frame as in Step 1 (5 years, 10 years).
When projecting expenses, consider applying inflationary increases (typically 2-3% each year), other cost of living increases, loan payments that may come due, upgrades in your standard of living, and expenses for starting a family.
Step 3: Assess Net Income (Income less Expenses)
For the current period, do you make enough income to pay for your expenses? How about for your standard recurring necessities? How much will you need to generate to cover your basic living expenses? What if we included your wish list of “nice to haves”? How much discretionary spending power do you have?
In your future state, will you have enough to live your dreams and accomplish your goals? If not, do you have discretionary income to save for that future state?
The purpose of this section is to help you understand and analyze the situation, both now and in the future. This is the key to help you make judicious decisions that will shape your destiny.
Open up Worksheet 3, download it, save it, and assess your current and future net income:
(Note: Having trouble with excel? You can also access the template in printable PDF format: Worksheet 3, Net Income)
As you assess your current situation and the future state, you can narrow the outcomes and their associated actions into a few alternatives. For example, if your net income is a ….
Surplus, Balance +, then optimize and allocate this surplus into investments, charitable donations, debt/loan paydowns, contingency fund for upcoming big expense (car, down payment on home), etc.
Deficit, Balance –, then increase income levels by working longer hours or increasing salary. Review expenses and reduce where possible. If the deficit is in the future, adjust your current net income (increase income, reduce expenses) to increase savings for this future state.
This assessment is the foundation for building a financial plan that will work for you – which brings us to the fourth and final step!
Step 4: Develop a Plan
Now that you know where you stand, it’s time to develop a plan to ensure the money you make supports your goals.
For example, what expenses can you reduce? What expenses are you committed to reducing? What habits are you willing to change? How can you increase your income to meet your obligations?
Write it all down, review it often, and update it frequently to reflect changing circumstances.
Need support in developing a plan? Use Swamiji’s Goal Setting Workshop and apply this proven method to build a practical financial plan!
Value of Sound Financial Management
As we already determined, if you invest only $200 per month from the age of 22, you could accumulate $1.2 million by the time you reach age 67! (Source: Small Actions, Done with Frequency, Create Wealth)
This is the purpose of investing in ourselves, making a budget, and adhering to the sound principles of financial security.
Want to learn more about budgeting fundamentals? Check out this quick video: How to Set a Budget and Stick To It!
Maha Lakshmi Ki Jai!