A budget is a plan for every Rupee you have, it is an estimate of income and expenditure which you should have for a set period of time. It ultimately gives you more financial freedom and a life with much less stress.
The simplest form of budgeting is dividing your income among needs, wants, savings and debt repayment, using the 50/30/20 budget as a guide. Let us see how to do this –
- Follow 5 steps to creating a budget
- Try a simple budgeting plan
- 50% of your income should be for basic needs
- Leave 30% of your income for wants
- 20% should be for savings and debt repayment
1)Follow 5 steps to creating a budget
- Calculate your income after tax. If you have a regular salary, the amount you receive is probably it, but subtract any loans or premium, fees, rents or fixed expenditure you have to pay.
- Choose a budgeting plan which must must cover all of your needs, some of your wants and also save some money for emergencies and the future.
- Keep a track your progress. Maintain a record of your spending or use online budgeting and savings tools with available online now.
- Automate as much savings as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part.
- Your income, expenses and priorities will change over time, so revise it when required. Adjust your budget but make certain to always have one.
2)Try a simple budgeting plan
- Your basic need which should be about 50% of your income after taxes would include – Groceries, Housing, Basic utilities, Transportation, Insurance, Minimum loan payments etc. Anything beyond this goes into the savings and debt repayment category.
- Leave 30% of your income for wants. Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment, or buying a new phone or taking a Gym membership. It’s not always easy to decide.
- If you have debts to clear, you may decide your wants can wait until you have some savings or your debts are under control. Every budget needs to keep extra waiver and money where you are entitled to spend as you wish.
- Your budget tool is to help you, not to keep your restricted from enjoying life. If there’s no money to enjoy, you’ll more likely not to stick with your budget plans.
- 20% of your income is for savings and debt repayment. Frame a bigger financial picture than the present scenario, it may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.
3)Keep an emergency fund
Experts recommend of bare-bones living expenses for couple of months so that you have an emergency fund of Rs 20,000 at least to begin with. This would be able to meet small emergencies and repairs. Them slowly build up on that. Moreover, you’ll sleep better knowing you have a financial cushion.
4)Lookout for any measures to save on taxes and extra expenses
Your company might be offering various schemes to save taxes and money in the form of subsidized housing, electricity and water charges, concession on school and tuition fees for children. Try and find out about these offers and avail them.
5)Avoid toxic debts
Credit card debts should be cleared at the earliest, personal loans, title loans and rent-to-own payments, all carry high interest rates where you end up paying two or three times more of what you borrowed.
6)Save for retirement
The next work to be done is to get yourself on track for retirement. Aim to save at least 15% of your gross income. If you’re young, start a SIP or invest in a mutual fund for long term.
7)Regular saving and contributions
Any savings can help you build up a decent bank balance. You can’t expect steady progress because emergencies happen, but now at least you’ll be able to manage them.