Proper budgeting is one of the strong pillars of financial planning that ensures sound financial base for your future. Having a monthly budget can prove to be an eye opener for you. .

Your ‘income and expense’ pattern indicates your spending and savings habit.

Budgeting Rules

Budget can be created by following 50-30-20 rule. According to this rule, you should set aside 50 percent of your income for necessities like housing bills, electricity, food etc,  20 percent for financial goals like debt clearing and retirement planning.

You may spend the rest 30 percent for entertainment, dining out purposes or whatever you like within your set budget.

However, in reality, 30 percent will be used for paying EMI including housing loan. Anybody who goes beyond 30 percent, chances of getting into debt trap is high. The 20 percent must get invested for financial goals. One should aspire to increase it further as much as possible. It purely depends upon when (earlier you start, better it is) you start investing for the goals. Spend remaining 50 percent for all other expenses including entertainment, medical, school fee, transport etc.

You can also plan your budget according to 80-20 rule where 80 percent of your income goes into fulfilling all the bare necessities including, bills and entertainment. The rest 20 percent goes toward your financial goals.

These rules can help you in segregating your budget into three categories─ obligation, goals and splurges. 

However, segregating your expenses in terms of wants and needs may appear difficult to you. Suppose, you live in a low-cost area and spending 50 percent of your income in housing and bills might be a lot of expense for you.

How to Prepare Budget

  1. Realize Your Actual Income and Expenses: In order to figure out your actual expense collect all your bills and count the amount. Make note of other expenses for which you didn’t receive any bill. If you collect money on weekly basis or if it does not come on any fixed date then make total of all the expenses and savings throughout the year and divide it by twelve (or do the same for the calendar month). This way you will be able to figure out your income on monthly basis.
  2. Create list of all the expenses: Using your bills and notes understand where your money gets spent every month and how. This will provide insight into  your spending and saving pattern.
  3. Segregate between things you can have and you can let go off: It will allow you to make out how much you need to meet your basic needs like food, housing, medicine and how much you can scrape out.
  4. Are you saving enough? If the answer is yes then try to figure out whether you are saving enough to meet your financial goals. If the answer is no then review all your expenses and figure out your financial goals of life. Review and curtail expenses pragmatically to channelize money into right direction for wealth creation.
  5. Set Goals: Unless you have financial goals in life your budget can not become a successful one. Your financial goals can make your budget more effective unlike any other.

There is nothing called a perfect monthly budget. It is you who make it perfect. Adjust your budget according to your income and financial goals.

The most important thing is that your budget should be realistic and goal oriented. It should be followed religiously after making necessary adjustments.

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