Often importance of budgeting and saving and responsible borrowing is ignored due to complication of understandings, RBI has as part of awareness campaign has explained importance of budgeting,saving and responsible borrowing.
- BUDGETING AND SAVING: A budget is a plan for your future income and expenditure that you can use as a guideline for spending and saving. Every house old should make a budget of income and expense and follow it strictly. It is ideal to make monthly budgets and stick to the budgeted expenses. The excess of income over expense is termed surplus. The surplus needs to be at lively saved or invested for any unforeseen events (accidents, natural calamities, loss of job) and important events in life (marriage, education to children travel to places, buying a home, vehicle). Savings also helps us when we no longer have the ability to earn, for example after retirement.
- Importance of savings: some portion of our income should be saved before we spend. First of all your savings should be in safe instruments and institutions. For example, if you put your hard earned money in institutions or instruments that are very risky/ non-regulated you may lose all your money. So it is important to save money in safe instruments or institutions. Second savings are for meeting planned or unplanned expenditure in the future. Hence it is better to save in those instruments and institutions that enable you to withdraw the money at the needed time. Third there should be some return on your money so that you are protected from inflation.
- Borrowing: one should borrow to invest in asset that create value and not borrow to fund daily expenses. Examples of good borrowings are mortgage loans to buy a house, education loan for funding children higher education etc.
- Bank vs moneylender: a bank is always better than a money lender as it is regulated by the reserve bank of India. Banks are transparent and do not overcharge like moneylenders. There is a system for grievance redress with well documented procedure in place.
Source: RBI Financial awareness