A 6-step guide on understanding money and how to create a personal budget that you can stick to and follow religiously.
Okay, we get it - creating a personal budget can be tedious, frustrating, and most of the time difficult to follow.
And for all these reasons, you might even hate the concept of budgeting. But, there is a way by which you can hate it a little less!
Don’t believe us? Here’s a 6-step guide on how to create a personal budget that you can stick to and save for a rainy day too.
1. Take a closer look at your monthly take away
First things first, take a realistic dig at what’s the spending power you have each month.
That’s because creating a budget is useless if you don’t focus on your monthly expenses.
And, no, dividing your annual take-home salary by 12 and spending it would not be a wise choice.
That’s because your plan wouldn’t account for creating a personal budget list that can cover an unexpected dental emergency or when you need to take the first flight home during holidays!
So, instead of putting in all your time trying to come up with a plan that only focuses on how, what and where you spend, rather create a simple spending plan.
2. Analyse your needs from your wants
Your financial needs are expenses that are vital to keep your life going.
These are most likely expenditures that are recurrent and consume a vast chunk of your paycheck, think of – rent, insurance premiums, loan repayments, utility bills, transportation, and food costs.
To determine your needs, all you gotta do is check your spending pattern.
One of the smartest ways to chalk this out is by analysing your credit/bank statements of the last 2 months and marking your calendar on days you’ve cleared your bills.
Doing this exercise can help you understand when money leaves your account.
This way, you can even discover your spending habits; for example, how many times do you order in for dinner and what’s the amount you spend each time.
3. Take charge of your wants
Some expenses that can contribute to making your life more comfortable can be clubbed as wants.
These are items that you usually can do without but the presence of it can make life more pleasurable.
For instance, food is a need but going out for dinners twice a week is more of a want.
To determine your wants, all you have to do is to subtract your needs from your monthly income to derive the amount that you can spend leisurely.
Therefore, monthly income-fixed expenses = extra money that can be spent as per your desire.
4. Don’t forget to save
Avoid overspending by classifying savings as an expense in your budget and keeping track of them!
Always have accountability for the money that you're spending as it can help you keep track of things later.
This practice will help you keep track and also control your savings.
Budget planning importance cannot be overstated enough, as keeping track of your expenses can help you both in the short- and long-term.
One of the smartest ways to account for savings is to use an additional bank account where you can save 10% of your income as soon as your salary gets credited.
Use another account to keep track of your spending and voila! You’ve created a simple solution that takes care of the budget issue you’ve faced all this while.
5. Track even the smallest expenses
If your budget isn't telling you the truth, you won't be able to stick to it! If you ordered a snack of Rs.100, then write it down in your spending journal.
Going for a movie night this weekend? Then track that ticket costs of Rs.250.
You can easily go through thousands of rupees in discretionary spending each year, and most of the time you won’t even realise it.
Acknowledging and recording all of your expenditures is the most effective method for adhering to a regular budget.
However, manually tracking your beer and burger expenses can be taxing and frankly stupid.
If you keep a manual track of your expenses each time an amount is debited from your account, chances are you’ll always be tensed about how much amount is leaving your wallet.
But, what if there was an app that lets you save every time you spend? Luckily, our advancement in tech has made that possible.
Jar is an app that helps you round off your daily spending and what’s best - you can invest this savings to acquire 100% secure digital gold.
Now, if this isn’t the best of both worlds then, what is?
6. Improvise your budget regularly
In an ever-changing lifestyle, your budget should not be constant. Over time, just like certain events can change your life patterns, then your budget should change and adhere to it.
For instance, when you think of availing a home loan or starting a family, your budget should make room for such milestones.
Similarly, certain costs can probably leave your existing budget plan – things like a completed EMI of the new iPhone or a previous student loan repayment
At the end of the day, what’s important is you to continually review and revisit your budget plan to understand if it’s still meeting your needs.
Check for your budget list periodically after every 2-3 months to calculate where your spending and income lie.
That’s a wrap from us
Now that we’ve shared these nuggets of wisdom on saving and budgeting, it’s time you went forth and tried them out.
With time, you’ll formulate your own procedure to budget, and things will become easier.
Keep experimenting, and trying out newer ways to save your money.
Get yourself a personal budget app to also assist you in understanding where exactly your money is being spent.
Always be aware and hold yourself accountable for the expenses.
It’ll become simpler for you to create a sustainable system that allows you to not just save, but also enjoy your money!