Absent Savings, Unequal Goals: Budgeting on an Irregular Income
Harpreet Kaur teaches in a government school in Bathinda and takes home ₹34,000 a month. Her husband does seasonal agricultural labour and brings in ₹12,000 in a good month and nothing in a bad one. The household is two children (14 and 9), her widowed mother-in-law, and a ₹6,500 monthly EMI on a refrigerator that ends in eight months. Current spending: food ₹9,000, school fees and tuition ₹4,200, transport ₹2,800, mobile and OTT subscriptions ₹1,500, ₹3,000 listed only as 'miscellaneous', and ₹1,200 into a chit fund. Last month she borrowed ₹5,000 from her sister to pay the elder child's examination fee. The elder child wants to join a science coaching batch costing ₹40,000 a year from the next session; the savings account holds ₹22,000. Her husband wants to buy a new motorcycle on a ₹3,200 EMI because the old one needs ₹9,000 of repairs.
1. Classify the family's monthly outflows as fixed, flexible or discretionary, and work out whether the household is actually saving anything. Show the calculation.
Read the worked answer
Fixed (must be paid, no choice this month): refrigerator EMI ₹6,500 (only 8 months left), base school fee. Reasonably fixed but negotiable at the margin: transport ₹2,800.
Flexible (cannot be zero, can be reduced): food ₹9,000. This is the largest single item and is where small changes matter most.
Discretionary (can be cut without harm to function): mobile/OTT ₹1,500, the un-itemised ₹3,000, and the additional tuition component. The chit fund ₹1,200 is a saving, not an expense.
Calculation of the realistic position: plan on the guaranteed ₹34,000, not the ₹46,000 best case. Total outflows = 9,000 + 4,200 + 2,800 + 1,500 + 3,000 + 6,500 = ₹27,000, plus the ₹1,200 chit = ₹28,200. Surplus on guaranteed income = ₹34,000 − 28,200 = ₹5,800. If the ₹12,000 comes in, the surplus is ₹17,800.
Judgement: the family is not short of money, it is short of a plan. The proof is the ₹5,000 borrowed from the sister while ₹1,200 sat in a chit fund that cannot be quickly broken. The real leakage is the ₹4,500 of mobile/OTT plus 'miscellaneous'. Until that is named and capped, no goal can be funded.
2. Evaluate the motorcycle proposal against the coaching goal. Is the EMI affordable? Use opportunity cost and liquidity in your answer.
Read the worked answer
The EMI is not too large in absolute terms - ₹3,200 is under the ₹5,800 guaranteed surplus. The problem is what it displaces and when.
- Opportunity cost: ₹3,200 × 12 = ₹38,400 a year, and an EMI runs for 2–3 years. Over three years that is about ₹1,15,000 plus interest - nearly three years of the ₹40,000 coaching fee. Repairing the old motorcycle costs ₹9,000 one time. Spending ₹9,000 to avoid ₹38,400 a year is the cheaper decision by a wide margin.
- Liquidity/emergency buffer: the family borrowed ₹5,000 for a routine exam fee. That means the emergency fund is effectively zero. A three-month cushion on fixed commitments (about ₹27,000) should come before any new EMI.
- Timing risk: the husband's income is seasonal and can be nil. An EMI is a fixed claim that falls due whether or not it rains. Committing a fixed claim against variable income is the classic cause of the loan-from-relatives cycle the family is already in.
Recommendation: repair the existing motorcycle now, defer the purchase until the refrigerator EMI ends in eight months (that frees ₹6,500), and only then consider a two-wheeler - ideally a used one paid for in cash, or with an EMI below ₹2,000.
3. Suggest three specific changes with rupee amounts, and show how the coaching goal could be met in twelve months.
Read the worked answer
- Cap the unnamed money. Replace 'miscellaneous ₹3,000' with an envelope of ₹1,000 and a written record of every spend → ₹2,000 saved.
- Subscriptions. Keep one OTT service and move to an annual or family plan: ₹1,500 → ₹700 → ₹800 saved.
- Food without nutrition loss. Buy vegetables and dal from the twice-weekly mandi in bulk rather than the local shop, and shift one meal a week from paneer to seasonal saag/chana. A realistic 10% cut is ₹900 → ₹900 saved.
Total freed: about ₹3,700 a month.
Funding the ₹40,000 coaching goal in 12 months:
- Freed from the budget: ₹3,700 × 12 = ₹44,400.
- But do not rely on the husband's ₹12,000; treat it as a bonus that tops up the emergency fund first.
- The ₹6,500 EMI ends in eight months, releasing another ₹52,000 over the following year - this is what should fund the second year of coaching.
- Keep the chit fund running for its discipline value but do not treat it as the emergency fund; open a separate recurring deposit or post-office account for coaching money so it is not spent.
Caution to state in the answer: do not simply cut food to ₹6,000 at the cost of the 9-year-old's milk and fruit - the saving must come from the discretionary lines first. Also, sanction the ₹9,000 repair from this year's surplus rather than borrowing again.