A good budget is like insuring your pocket from disasters. It helps you to spend wisely without hurting the pocket. But, planning a budget for gifts is not as smooth as it sounds.
You need to know how close your friend is, and how much you can afford to spend on a gift. You sometimes wish there was a formula to make everything simpler.
Oh, wait! Did you just wish for a formula? Actually, I have one! This formula is the ‘new way’ I mentioned at the start.
Here is that magic formula, which will help you to plan a better budget every time from now on.
Your Budget = Average Cost * [(1+ 1/Closeness) – (1 – 1/Financial Situation)]
I know, at school, you had a bumpy relationship with all the geometric and statistical formulas. But, trust me, this is not a mathematical formula. It might look like one, but it is not.
You can use this formula to work out how much you should spend on a gift. Just figure out the three parameters: average cost, financial situation and closeness, and you are good to go!
How did I come up with these parameters though?
Well, I thought about how I used to gift in the past. If the recipient was quite close to me, I used to throw a couple of extra bucks at the gift. But, only if I could afford to lose those extra bucks. Hence, the ‘closeness’ and ‘financial situation’ in the formula. The average cost is the core of the equation.
Now, let us see these parameters in detail.
How would you calculate the average of five random numbers? Simply add them up and divide the result by five. Right? It is the same here actually. Except we are not using some random numbers from the number line.
Take a paper, write down how much you spent on each of the last ten or twenty gifts you bought. Add them to find the total amount. Divide this total with the number of gifts. You have your average cost. Simple!
For example, imagine the total money you spent on the last 10 gifts adds up to Rs.5000. So, the math is, 5000 divided by 10. Which leaves 500 as your average cost.
You don’t always enjoy the same financial freedom, do you? Sometimes, you have lot of money and nothing to worry, and some other times, you have nothing, but worry!
Rate your financial situation on a scale from 1 to 3. 1 for ‘easy’, 2 for ‘okay’ and 3 for ‘hard’.
Who are you buying the gift for? Your friend, relative or someone from your office? That doesn’t matter, by the way. What matters is how close you are to the person. Depending on this closeness, you should replace the ‘closeness’ in the formula with the following values.
|I'm Very Close||1|
|My Distant Relative||3|
|Out of Habit / Occasion||4|
|Out of Obligation||5|
If you are very close to the giftee, like butter to bread, use ‘1’. If you are not that close, but still close, use ‘2’. If the person is someone who you know, but is quite ‘distant’, use ‘3’. If you are buying the gift for the person because it is a habit to gift on certain occasions, use the value ‘4’. And sometimes you buy gifts for someone just out of obligation. If this is the case, replace ‘closeness’ with ‘5’.
Example#1 – Buying a gift for a very close friend when you are financially ‘easy’
All that’s left to do now, is calculation. You have an average cost, Rs.500. Let’s say your financial situation is ‘easy’; so, that’s a ‘1’. And you rated your friend as ‘close’. So, a ‘2’. Here is how the formula looks like now.
Budget = 500 * [(1+ 1/2) – (1 – 1/1)]
Budget = 500 * [1.5 – 0]
Budget = 750
So, if you want to buy gift for a close friend when your financial situation is easy, add half as much to the average cost. At least, that’s what the formula says.
Example#2 – Buying a gift out of obligation at hard times
Let’s take another example with the same average cost, Rs.500. This time, let’s imagine your financial situation as ‘hard’. And you are buying the gift out of obligation, more than anything. So, the values are ‘3’ and ‘5’. How does the formula look now? Let’s see.
Budget = 500 * [(1 + 1/5) – (1 – 1/3)]
Budget = 500 * [1.2 – 0.67]
Budget = 500 * 0.53
Budget = 265
So, when your financial situation is tough and just obligation is what drives you to buy gifts, your budget can be cut short to almost half the average cost.
This is how our small mathematic formula helps you with budgeting. Once you know how much you need to spend or how much you can afford to spend, you are all set for shopping. Happy budgeting!
What do you think about this formula? Do you like it? Please let us know in comments.