Making a monthly budget is easy if you know the basics. Learning those basics is also easy, we will dive deeper into it and discuss how you can create your monthly budget. It will help you manage your money smarter.
You just need basic knowledge of your monthly income and expenses. You can use pen-paper or excel or Google spreadsheet for the budgeting. Let’s start with benefits of budgeting.
Benefits of Making Monthly Budget?
- Pay Off Your Debts Quickly: Budgeting helps you track and pay off debts systematically. It’s like a roadmap to financial freedom. When you know where every rupee goes, managing debt becomes easy.
- Take Informed Financial Decisions: When your money data is easily accessible and you know your cashflow well, taking financial decisions become easy and significantly increases your confidence in decisions. You tend to take right decisions every time.
- Future Planning Becomes Easy: Budgeting allows you to plan ahead. Whether it’s saving for a vacation, a new car, or retirement, a budget gives you a clear financial path forward.
- Achieve Financial Freedom: A well-planned budget can lead you to financial stability. When you know where to spend and have proper future planning you can easily make adjustments to your current budget and achieve financial freedom.
What are the prerequisite of budgeting?
Budgeting doesn’t need a lots of preparations you just need to have some knowledge about your income and expenses which you generally have and a place to manage your monthly budget.
- Make sure you know your monthly / annual income.
- You should know your monthly expenses.
- You need a pen & paper or if you are familiar with excel you can do budgeting in excel or google spreadsheet.
How to create your monthly budget?
Now you know the benefits of monthly budget and you have all the prerequisites for creating a monthly Budget. I hope you are excited about it. Let’s start with very easy to follow steps:
Note down the Expenses
We will start by noting down your expenses.
- First make a list with 3 columns → Description, Amount, Frequency.
- Description Column will have details of expenses.
- Amount column will have exact or max amount. like in case electricity bills or kitchen expenses you can put max expected amount.
- Frequency will help us plan our monthly and yearly expenses.
- Now fill this list with all the monthly and yearly expenses.
Look for regular expenses that repeat after a fixed interval. Some examples include:
- Rent
- EMIs
- Kitchen expenses
- Utility bills (electricity, mobile, water, milk, etc.)
- Commute to workplace
- Insurance policy premiums (term insurance, health insurance, LIC, etc.)
Take a realistic number for your other unplanned monthly expenses like:
- Travelling
- Eating out
- Swiggy/Zomato
- Shopping
Understanding Your Income
Next, create a list of regular monthly income. Include all fixed income sources.
- Salary
- Side business income
- Rental income
- Farming income
- Others
| Income Source | Amount | Frequency |
|---|---|---|
| Salary | xxx | Monthly |
| Farming Income | xxx | Yearly |
Creating Your Monthly Budget
These three lists are your reference budget sheet for every month.
Rule of thumb: Monthly expenses + investments should not be more than your monthly income.
Use these lists as a projected budget every month. Adjust for yearly incomes as their credit date might not match your expense dates.
Optimizing Your Budget
Once you are happy with your monthly investments and expenses, you’re good to go. If you think your investment is less, you need to adjust your expenses.
Additional Tips
- Be Realistic: Your budget should reflect your actual spending habits.
- Track Your Spending: Monitor your expenses to identify areas where you can cut back.
- Set Financial Goals: Determine your short-term and long-term financial objectives.
- Review Regularly: Re-evaluate your budget periodically to make necessary adjustments.
- Use Budgeting Tools: Explore budgeting apps or software to simplify the process.
By following these steps and consistently monitoring your finances, you can create a budget that empowers you to achieve your financial goals.
Common Budgeting Mistakes
Even with the best intentions, budgeting can be challenging. Here are some common pitfalls to avoid:
- Underestimating expenses: It’s easy to forget about small, regular expenses like subscriptions or eating out. Tracking your spending for a month can help identify hidden costs.
- Overestimating income: Relying on potential income sources like bonuses or overtime can lead to budget shortfalls. Base your budget on your consistent income.
- Ignoring savings: It’s crucial to allocate funds for savings and emergencies. Consider automating savings to make it easier.
- Lack of flexibility: Life happens! Be prepared to adjust your budget for unexpected expenses or changes in income.
- Not tracking progress: Regularly reviewing your budget helps identify areas for improvement. Use budgeting tools to track spending and income.
- Giving up too soon: Budgeting takes time. Don’t get discouraged by initial setbacks. Persistence is key.
By being aware of these common mistakes, you can increase your chances of creating a successful budget.
How Much Should You Save?
Saving money is crucial for financial security and achieving your goals. But how much should you actually save? The answer depends on various factors like your income, expenses, financial goals, and emergency fund needs.
Determining the ideal savings amount is essential for creating a sustainable budget. In our next article, we’ll delve deeper into savings goals, emergency funds, and strategies to boost your savings.
By understanding your savings objectives and implementing effective strategies, you can build a strong financial foundation.
