You can learn to balance your income with your expenses and even have some money left over for savings and extras. Let us show you how to manage your incoming and outgoing finances. Income Most of us have a source of income through our job, business, farming, pension, etc. Many may also be receiving interest income from their investments. Whatever be the sources of income, you need to know how to keep track of it and manage it to cover your expenses and save for future. Expenses It costs money to live. You need to pay for food, clothing, housing, transportation, communication, and a dozen other necessary expenses. Then there are things like vacations, entertainment, gifts for relatives and so on. If you want to reach your goals, there are two things you must do with your expenses: The first step in controlling your spending is to get in the habit of tracking your daily expenses so that you know how much you spend and what are the details of your expenses. You will be surprised to know how much you spent and what you spent it on. Budgeting Now that you know your income and expenses, you need to put them together and that is called a budget. There's nothing difficult about a budget. It is simply a comparison of income and expenses. Is the difference between your total income and total expenses a positive or a negative figure? If it is positive, you have a surplus. Congratulations! With the extra money you must pay off any debt or loan if you have. Otherwise you can increase your monthly savings amount or invest for future. If it is negative, you have a deficit. You need to increase your income to balance your budget. Reduce your expenses by focusing on what are your needs rather than wants. Budgeting isn’t a one-time thing. To make it work, you need to do it regularly. At first, do this weekly and once you are comfortable you can do it monthly. Saving Saving is a key step to make sure your future is financially secure. Start early to give your savings as much time as possible to grow. It will help you to meet your financial goals and provide for your future. What is Saving? It would be a good approach to view Saving as follows: What is power of Compounding? With simple interest, you earn interest only on the principal (i.e., the amount you initially invested); while with compounding, you earn interest on the principal as well as, previously earned interest. A sum of Rs.100/- invested for 10 years, at 10% rate of interest, amounts to Rs. 200/- with simple interest, and Rs. 260/- (approx.) with compound interest, at maturity. What is power of Compounding? With simple interest, you earn interest only on the principal (i.e., the amount you initially invested); while with compounding, you earn interest on the principal as well as, previously earned interest. A sum of Rs.100/- invested for 10 years, at 10% rate of interest, amounts to Rs. 200/- with simple interest, and Rs. 260/- (approx.) with compound interest, at maturity. Rule of 72: Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return Years to double = 72 / Interest rate An amount of Rs.1000/-, invested at 9 % rate of interest, will double in 72/9 = 8 years How to Save? Now that you’ve decided you want to save, how do you go about it? Keep these tips in mind: