A Budget is a statement which an individual prepares to forecast his future income, expenses and savings. There is a myth among individuals that budgeting is only for wealthy people who have a lot of money to manage (if you believe in this then nothing could be further from the truth). Budgeting is for anybody and everybody. In this blog we will answer the following questions-
- Why should one make a budget?
- What are the steps to make a budget and track it?
WHY SHOULD ONE MAKE A BUDGET?
- ONE GAINS CONTROL OVER HIS FINANCES- We as humans feel confident and happy when things are under our control and going as per planned. One can gain control over his finances by effective budgeting as he has an estimate of how much to spend and invest.
- 2.IDENTIFIES SAVINGS OPPORTUNITIES- Budgeting draws attention to any overspending and makes an individual aware of a possible opportunity to save, thus making a budget helps to channelize the overspending into savings.
- 3.BUDGETING HELPS BUILD FINANCIAL DISCIPLINE- When one is making a budget he decides a % of his salary should be invested and thus building financial discipline by ensuring that the investment is made every month no matter what.
WHAT ARE THE STEPS TO MAKE A BUDGET?
A budget is not hard to make or implement. Budgeting along with financial discipline can go a long way to achieve financial freedom for an individual. The following are the steps to make a budget
- INVOLVE FAMILY MEMBERS-
The first step would be to announce your plans of making a budget with your spouse or other family members and once all their goals are aligned with that of the budget it will easier to achieve the target.
- GET YOUR DOCUMENTS IN ORDER-
Budgeting is forecasting the future i.e. making estimates about your finances in future, so one cannot expect it to be 100% accurate however the more accurate you are the better it is, your previous bills and salary slip will show you the exacts amounts you spend and earn and based on the previous trend you can come up with estimates which will be nearly accurate, so to sum it up GET YOUR BILLS IN ORDER.
- CATEGORIZE ITEMS UNDER INCOME, EXPENDITURE & SAVINGS-
After getting your documents in order start classifying various items under the following heads “Income, Expenditure & Savings” based on your previous bills and once that is done try to figure out if there is some expenditure which you can cut down on and invest the same or any other way you can maximise your savings. You can also opt to add sub-categories and make it more specific
- CREATE A PLAN-
Once you are done analysing your current spending and investing habits draw up a new plan which you want to follow for the future and make sure it is realistic. Try to come out with a plan in which you tend to save at least 10% of your net income.
5. STICK TO IT WITH DISCIPLINE AND REVIEW IT-
Even the best plan may go waste if you don’t follow it. Implementation is the key to any plan, always make sure you are line with the budget and if you have overstepped then that should be considered as a warning signal. Once in a month you should review your budget. As life passes on you will have to revise your budget when there are important changes in your life like marriage, having a child and etc.
There are tons of apps out there on the internet which help you with tracking your budget so download one of them on you phone today and get started. We at Mitra money believe that budgeting is very important for one’s financial health and it should be implemented as early as possible. Feel free to contact us in case of any doubts regarding the same