Open Magazine — February 14, 2018

Avenues

own and what you owe. Just the way
companies use a balance sheet for
this purpose, so can you. A personal
balance sheet is a statement of
your financial position on a given
date — a snapshot of your financial
status at a particular point in time. It
lists the assets you own, the debt or
liabilities you have to service and your
general level of wealth, which is your
net worth or equity.
Assets represent what
you own. Liabilities
represent your debt
or what you owe. To
determine your level
of wealth or net worth,
you subtract your level
of debt or borrowing
from your assets.

Net worth is important to know

because it represents the level of wealth

you have accumulated. For instance,

if your liabilities are greater than the

value of your assets, then your net

worth is negative, a situation which is

not the best to be in. This state arises

from consuming more than you take in

financially. This should not dishearten

you, especially if you are in the beginning

of your career and

have taken up loans

to build assets.

Likewise, it is natural

for a 25-year-old to

have a considerably

lower net worth than a

45-year-old. You could

checkout on how to

interpret your net worth

in the story on measuring your financial

health a few pages later.

tracing your Money

Although income is usually very easy to

calculate, expenditures usually are not.

This is so because many expenses do

not leave a proper paper trail. So, it’s hard

to keep track of all the little things you

spend your money on. But to create a

valuable personal financial plan, you must

understand where your money goes.

Some financial planners also classify

living expenses as variable or fixed

expenditures, depending on whether

you have control over the expenditure.

These classifications are appealing, but

not all expenses fit neatly into them. For

example, it’s difficult to categorise car or

home repairs as being either variable (you

50

%

Of income

towards

household

expenses

12 FEBRUaRy 2018 http://www.openthemagazine.com 63

Making a Household Budget

STEP 1

Know your monthly income: Income could be from paycheque, pension, gift

or unexpected cash. If the monthly income varies because your work hours

constantly change or you work on commission, prepare your budget based

on the base salary or average of your last three paycheques.

STEP 2

List your financial responsibilities: These could include expenses that occur

periodically, like EMIs, rent, insurance premiums or school fee or property

taxes. Fixed expenses are easy to track because they more or less stay the

same each month, but the variable expenses, like groceries, fuel and enter-

tainment, are tricky because they change from month to month.

STEP 3

Track spending: Monitoring your variable expenses is easy, if you hang onto

your receipts and write down all financial transactions for one month so you

can get an accurate picture of your spending.

STEP 4

Categorise your spending: Stack all your receipts and list of transactions and

sort them into different categories such as eating out, clothing, entertain-

ment, and household expenses. Now, assign a sum for each category each

month to prepare your monthly budget.

STEP 5

Balancing: Once the budget is assigned, subtract the predicted expenses

from your projected income. If you are over the budget or it seems you are

spending more than you earn, adjust your spending for categories to balance

out your earnings and spending.