10.5.1. Checking

Checking is important as it tells how one’s plans are progressing and where adjustments are needed.

Checking plays a crucial role in financial management. It helps individuals or families monitor their financial plans and see if they are on track to meet their goals. By regularly assessing progress, families can identify areas where expenditures are higher than expected or where they can save more. This ensures that the financial management plan remains aligned with their objectives.

Imagine you are on a road trip. Checking your progress regularly helps you see if you are still on the right route or if you need to make adjustments. Similarly, checking financial plans helps families stay on track with their budgeting and spending.

There can be two kinds of checks: (i) Mental and mechanical checks: Mental checks are usually established by breaking the allocations into units which can be related to actual expenditures. For example, Rs. 1,000 may appear to be a large amount to a student, but when one realizes that one must purchase a pair of shoes, a new dress for a festival and a few books all at one time, it is obvious that one must take extreme care in the selection and the price in light of the total money available.

There are two kinds of checks used in financial management: mental checks and mechanical checks. Mental checks involve breaking down the budget into smaller parts. This helps individuals visualize what their money must cover. For instance, if someone has Rs. 1,000 and needs to make several purchases, they must prioritize their spending and make careful choices. Mechanical checks refer to physically setting aside cash for specific expenses, such as using an envelope system where money for certain categories is kept separate from the general spending money.

Consider it like organizing your closet. You may have a big pile of clothes (your budget), but to decide what to keep, you break it down into categories (like shirts, pants, shoes). This way, you can easily see what you have and what you need, just like checking your budget helps you see where your money is going.

Records and accounts show the distribution of money after expenditures have been made. Such records can be quite casual, such as keeping everyday written accounts or receipted bills, or they can consist of formal and detailed accounts. For a family, the purpose of records is to show the distribution of money which has been spent and to compare the amounts spent with the amounts allocated to a particular group of items.

Keeping records and accounts is essential for effective financial management. These records can range from simple daily logs of expenses written in a notebook to more formal accounting systems. The primary purpose of maintaining records is to track where money has been spent and to analyze whether spending aligns with the planned budget. This helps families identify patterns in their spending habits and adjust their plans accordingly to avoid overspending.

Think of it like tracking your daily calorie intake if you’re trying to lose weight. Just as logging what you eat helps you see how many calories you consume and adjust your diet accordingly, keeping financial records helps you understand your spending and adjust your budgeting to meet your financial goals.

Advantages of record keeping for a family include: Monthly expenditure can be compared with the spending plan and show us where adjustments must be made to avoid excessive expenditure. Helps in identifying those categories or sub-categories where expenditure is too high or too low.

Record keeping has several advantages for families. It allows for a direct comparison between what was budgeted and what was actually spent. This comparison helps families make necessary adjustments to prevent overspending in certain areas. Additionally, tracking where money is spent can highlight categories where expenses are unusually high or low, providing insights that can lead to better financial decisions in the future.

Imagine a gardener who is trying to grow a variety of plants. By keeping track of how much each plant needs in terms of water and sunlight, the gardener can adjust care for plants that are not thriving. Similarly, keeping financial records helps families adjust spending in areas that are consuming too much of their resources.

Adjusting the plan is very important to keep it on track. Adjustments may be needed if the original planning was poor because of factors beyond the family’s control like emergencies, family going on an unplanned shopping spree or inadequate checking mechanisms which do not tell the family that there is a considerable gap between the plan and its execution.

Adjusting financial plans is a crucial step in money management. This allows families to respond appropriately to unforeseen circumstances that may disrupt their budgeting, such as unexpected expenses or changes in income. If original budgets are too rigid or not frequently checked, families may find themselves in financial difficulty. Regular checking helps highlight discrepancies early, enabling adjustments to be made before problems escalate.

Consider a travel itinerary. When traveling, plans can change due to weather, unexpected happenings, or changes in interest. Just as a traveler adjusts their plan based on current conditions to ensure they still enjoy their trip, families must adjust their financial plans based on current circumstances to maintain their financial health.

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