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Budgeting & Mathematical Finance

By Aniket Mittal


If you’ve ever seen or read Harry Potter, you know that not all of us are blessed with an infinite sum of money. Unlike Harry, most of us can’t pull gold out of our pockets. Consequently, we need to budget and monitor how much money is spent in comparison to how much money is earned.

What is Budgeting?

Budgeting is simply controlling the amount of money spent and saved in order to prevent debt and ensure long-term financial prosperity. However, this can be quite difficult. In fact, only 12% of American adults actually know how to properly budget. The best rule to follow is the 50/30/20 rule. After deducting tax payments, use 50% of your income for needs, 30% for wants, and 20% for debt repayment and/or saving.

There are many ways for you to keep track of your progress and budget effectively. One effective way is the envelope system. Either performed using physical envelopes or a digital spreadsheet, in this method, you divide your income into three envelopes following the 50/30/20 rule. This helps control your spending & ensure that you aren’t spending more than you need to.

Another method is the zero-based budgeting system. In this method, you can create a spreadsheet where you list all of your wants, savings and expenses for the month until you form a net total of 0. This is pragmatic because it ensures that you can outline your expenses, preventing unnecessary purchases. To help you create a proper budgeting plan, you can use Excel and other spreadsheet programs in conjunction with famous budgeting applications like Personal Capital, EveryDollar, YNAB & Pocket Guard.


To assist you with budgeting and financial planning, you can open different types of accounts to save and conserve money. Banking is an effective way of saving money because it helps keep your assets safe as well as limits your expenditure and in some cases, allows you to earn more money in the process.

Checking Accounts:

A checking account is a type of deposit account held by financial institutions in order to withdraw and deposit money. Checking accounts are often extremely liquid simply because they allow for easy relatively limitless withdrawals and deposits. Such money can be deposited and withdrawn using electronic money transfer, checks / direct deposit and automated-teller machines (ATM’s). Checking accounts are often associated with debit cards and checks, allowing you to make easy withdrawals. The only drawback of using a checking account is that there are often less benefits and a limited amount of interest, if any at all.

Savings Accounts:

Often just for savings, you can deposit a principal amount (and later more) as well as receive interest from the bank on that account. An important term to note is annual percentage yield (APY) or the real rate of return on an investment. The only drawback is that this account is less liquid, limited to only 6 withdrawals per month.

Money Market Account:

Think of a money market account as the neapolitan ice cream you receive at your local grocery store.. It combines three of America’s favorite flavors: chocolate, strawberry and ice cream. Similarly, A money market account combines checkings / savings accounts by paying interest as well as allowing check-writing and debit card abilities. Although there is usually a needed down-payment, such plans are effective if you plan on saving up for multiple things like down payments for houses & cars.

Certificate of Deposit Account:

Comparable to a savings account, this account only lasts for a set amount of time. However, this account does provide interest that often increases as more time passes for maturity. Maturity is when the contract states that withdrawal is accepted without penalty. As a result, such accounts are often more liquid and are better for short-term savings instead of long-term emergency savings.

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