5 things to remember while preparing personal budget

It is beginning of a new year and people are interested in preparing their personal budget and thereby plan their personal finances. In an interview to CNBC-TV18, Pankaj Mathpal, Optima Money Managers shared the benefits of planning a proper personal budget.

He highlights a few key points while planning a personal budget. One should always get into the habit of writing down the budget, always pay for your expenses by cash instead of using credit card, keep few number of savings bank account and always keep adequate cash flow for emergency, he adds. Below is the edited transcript of his interview on CNBC-TV18 Q: How would you advise investors to prepare their personal budget as well thereby plan for their personal finances? How does one think about this? How do you connect personal budgets and personal finances? A: Firstly, it is very important to write budget because if you do not write budget it is very difficult to maintain cash flow. Usually, it is seen that on 25 th day you always wait when the 1st is coming and you get your salary. So if you write your budget and stick to it then definitely it becomes easy to maintain cash flow. While writing your budget you should include all your income that is income from salary, business, rental income, income from other sources like dividend or interest income etc and also when writing expenses you should include all expenses and include your family members in discussion. Sometimes, you only consider major expenses but some minor expenses are left out and because of that it becomes difficult to follow that budget later. If you are investing for some goals treat those investments also like your expenses and contribute for them. So once you know what is your inflow and outflow then you maintain proper cash flow and definitely your life will be easier. Secondly, to maintain this budget my advice is that always try to pay cash instead of spending on your credit card because it is very easy to by credit card but difficult to pay that bill later. However, if you pay by cash chances are there that you think twice before spending money. You should not have too many credit cards because there are chances that sometimes you will forget to pay your bill before due date and then you will end up paying interest on that as well as late payment charges. So just keep two cards which are best suitable for you and cancel all other cards, if you have more than two cards. One should also not have more than two saving bank accounts; otherwise you will keep maintaining minimum balance in those accounts. Try to keep your personal expenses as less as possible. Repay the costly loans, this is very important because sometimes if you have taken up loan, you are paying high interest on that and at the same time you are also investing. First see to it that you close your loans and then start investment. Maintain adequate cash flow because in case of emergency because if you do not have proper contingency funds then you would apply for personal loan or use your credit card and then pay high interest. So, if you maintain adequate contingency fund then you will not spend extra money on this personal loan. Caller Q: Is it still a good time to invest in gold? Which Exchange-Traded Fund (ETF) would you recommend? A: It is definitely better to buy gold ETFs compared to physical gold. Every individual should have some allocation in gold because gold has the ability to stabilize portfolio and to protect the portfolio against market fluctuations. Secondly, we have seen that gold has always delivered consistent returns, so some part of your portfolio should be allocated in gold. Gold ETFs are better. One, because when we calculate capital gains tax, in gold ETF after one year, any gain is considered long-term capital gain whereas in physical gold after three years, the gain is considered as long-term. So in that way it is better. Two, storing is easier. For gold ETFs, you get units and you can sell them anytime. To answer your question on which gold ETFs one should invest in, all are same because the underlying asset is gold. So it will depend on the returns of physical gold but however it performs, your ETF will give you returns accordingly. You can consider Reliance Gold ETF or Goldman Sachs Gold ETF in your portfolio.