Posts Tagged ‘Restriction’
Why Planning & Budgeting is Critical to Becoming Financially Free
I can still remember my first lecture in Management Accounting. The lecturer was introducing us to the concept of budgeting and at the end he made a little joke, which went something like this: “If your budget has turned out exactly right, you have either had an amazing stroke of luck or got it wrong!” Of course, what he meant was: budgets are not meant to be accurate. They are there as a guide – an important, essential guide that should act as both a planning and control mechanism.
I try to avoid the word budget with my new clients but I would like to introduce you to the real meaning of budgeting. Forget about the concept of restriction and restraint often associated with household budgets and start thinking about your finances in the same way that good businesses do.
The glue that holds all successful business practices together is the master budget. It ties in all facets of the business – marketing, selling, financing, research and development, and personnel management. Without a good master budget that incorporates all activities of a business, an organisation will end up floundering. And a floundering business is rarely profitable.
The budget provides the cohesion between the differing objectives of diverse parts of the business and creates a unified goal for the total organisation to work towards. It enhances motivation, delegates responsibility and provides important feedback on the progress of individuals and the organisation as a whole. Not bad, for a simple system that we all thought someone installed to punish us for our mistakes.
Budgets are not punishment. They are important, useful tools that guide us to where we want to go. They allow us to plan for our future yet control our circumstances along the way. They are not meant to be exact, but rather flexible and accommodating. They should change when we change, but still be resilient enough to prevent us from going off the rails. They point us in the right direction and correct us when we fail. Without a budget for our finances, we are trying to win the 100-yard dash blindfolded.
What are Personal Loans?
Personal loans are loans which are given without any specific purpose in mind. In simpler terms, unlike a car loan or a home loan, a personal loan can be put to any use by the beneficiary according to his/her discretion. Personal loans can be used for a wide variety of purposes, and there is no restriction or compliance with specific conditions in its usage. This makes the loan very convenient for a borrower. The loan can be repaid like all other loans through the equated monthly instalment (EMI) process where a fixed amount is paid each month. The distinguishing features of personal loans are as follows:
They are provided without any specific purpose in mind.
They are usually unsecured loans.
They come at a higher rate of interest than other loans.
They are for a relatively shorter duration, less than 5 years usually.
Advantages of a personal loan
The biggest advantage of a Personal loan is that it is an all-purpose loan. So you can take a personal loan to take your family on a trip to Europe, or buy the latest Sony LCD TV, or even to pay off your credit card dues. Your bank doesn’t care as to how you use the loan amount sanctioned to you.