HOW TO MAKE A SIMPLE BUDGET AND STICK ON IT TO ACHIEVE YOUR FINANCIAL GOALS

Introduction :Most of the people cannot recognized where their money goes at the end of the month. They are struggling to manage their money because they do not have a specific financial plan. To control your money and achieve your financial goals it is necessary to make a budget plan and it is  most powerful tool to  achieve your goal.

In this blog I am discussing step by step to create a simple budget:

1.    Set up your goals: Your first step is you should be set your financial goal, without specific goal you cannot achieve your goal, so at first you should set your financial goal.

You should mention for what purpose you save the money, the purpose may be for retirement, emergency funds, vacation , debt payoff etc.

Mention that whether your financial goal is short term or long term, it will help you to stick on the budget.

Your long term goal may be to purchase a house and you  save money to make down payment for your house because larger down payment reduce your loan amount .

 your short term goal may go for a vacation and save money for this purpose help you to avoid going into debt for non-essential purchases.

Most important is you should make a specific goal.

2.    Calculate your income:     You have to calculate your total income which will be total up of all sources of monthly income (like income from salary , income from bank interest, income from dividend , any passive income ,  etc.)

Thereafter you have to calculate your net income to get your accurate income which is in your hand at the end of the month.

if you are a  employee in a company then your net income will be Gross income – tax.

For example Suppose Mr. S has the following source of income 

 a)Income from Salary Rs. 50,000 per month and tax is Rs. 5,000

b) Income from Dividend  Rs. 25000

c) Income from Bank Interest RS.1500

Then the Total monthly income of Mr. S is

(50,000-5000)+25000+1500 = Rs. 71,500

3.    Calculate your expenses: You have to make a proper list of your monthly expenses, you can separate your expenses into fixed and variable expenses. (fixed expenses like rent , loans etc. and variable expenses like groceries , entertainment etc.)

For example Mr. S has the following monthly expenses :

a)    Fixed expenses :

i)                   Rent – Rs.10,000 per month

ii)                Internet , Mobile recharge – RS. 1000 per month

b)   Variable expenses :

i)                   Grocery – Rs. 8,000 per month

ii)                Transportation – Rs. 5,000 per month

iii)              Entertainment – Rs. 3,000 per month

So, total monthly expenses of Mr. S is

(10,000+1,000+8,000+5,000+3,000) = Rs. 27,000 per month

    Allocate income to categories : You have to make a plan to allocate your income across expenses , debts and savings.

You can use 50/30/20 rules , it means you spend 50% of your income into needs , 30% of your income spends for wants and 20% of your income spends for savings or repayment of debts.

5.    Track your spending: Most important thing is you have to track your spending. To make a perfect budget you have to track your spending on regular basis. To track your spending you can use some tools like Mint , YNAB or you can simple note down your spending on spreadsheets. If you cannot track your spending you cannot achieve your financial goals  , so keep tracking your spending.

6.    Review budget and adjust on regular basis : You have to review your budget on monthly basis , you can adjust your expenses on monthly basis and mention how to make adjustment into your budget when unexpected expenses will arise .(unexpected expenses like emergency fund use).

Example for how to adjust your expenses

Suppose if your housing cost is too high then you may cut down the expenses in the following way

a)    Go to a less expensive place for vacation

b)   Buy a less expensive mobile phone instead of buying a expensive phone

c)     Try to purchase grocery by using discount coupons

d)   Try to use public transport instead of using bike or car , it reduce petrol cost . etc.

Some tips  for stick on your budget:

1.    Automate savings : you can set up automatic transfer to your savings accounts .

2.    Avoid unnecessary expenses : You should wait at least 24 hours – 48 hours before spending your money to purchase unnecessary things , think properly before buying any unnecessary goods . Do not spend your money to purchase any unnecessary things rather you should use that money for savings or pay off your debts, this will help to grow your financial status.

3.    Celebrate small wins: you reward yourself when you achieve your savings goal it will motivate you to stick on your budget.

Conclusion: If you want to achieve your financial goal or if you wish to improve your financial status you have to make a simple budget and stick on it . Remember one thing you should make consistency with your plan and make small adjustments on regular basis which will help to achieve your financial goal.