Online Personal Loans - How Does Your Monthly Budget Look Like

Budgeting is the first and probably the strongest pillar of financial planning . If you wish to build robust financial health, it has to start with preparing a budget and sticking to it. But what is a good budget? While there are many ways you can make your monthly budget, it must have some important components in it.Let’s look at one such popular way of budgeting.

In her bestseller "All Your Worth: The Ultimate Lifetime Money Plan" Elizabeth Warren promoted one of the most effective ways to plan your finances. Known as the 50-30-20 rule, it follows a simple allocation process of distributing your income after tax into 3 main segments. Let us look at these buckets that can help you plan your monthly budget.

• Rent and Debt: Rent and debt will form major of your expenses under the "fixed obligations" category. Staying on rent can be very expensive, especially if you are living in a metropolitan city such as Delhi, Bangalore, Mumbai, etc. Thus, it is important to budget for rental accommodation unless you're living rent-free or in your own house. Debt payments in the form of EMIs can also take away a big portion of your income.
• Food & Utilities: Next up is food and utility costs. This would include your monthly grocery spends, electricity bills, internet bills, etc. While it may seem like a small amount when you see each of these in isolation, they can add up to become a significant portion of your monthly expenses.

• Fixed Obligation 50% or less of what you make goes into this bucket. It includes expenses that you cannot do without every month. It includes all the obligations you have to honour every month in EMIs, Rent, utility bills, etc. Let's look at some of the most common components of this category.
• Desires 30% of your income should be allocated to accomplish desires and wants. This includes expenses that are not necessary but are important to living a well-rounded life. Dining out at restaurants, hosting dinners for your family and friends, vacations, etc., can form a part of this portion. With this, it is essential to note that while you make some portion of the expense every month, others may happen quarterly, sem-annually, or even annually.For instance, you may not spend anything for a month on two from this bucket but may have to spend all-together on a family vacation. That is why it is crucial to keep allocating 30% or less to this bucket even if you're not making the expense in that particular month.
• Investment and Savings: At least 20% of what you earn should go towards helping you achieve your financial goals. This would include opening a fixed deposit account or starting a SIP, or investing in a retirement plan. It is recommended to take this portion at the start of every month before you make other expenses, as this is the first one that usually gets hit whenever there is slight turbulence. Committing to a SIP or a Recurring deposit can be a good way to ensure you build robust financial health.

Let’s take a look at an example to understand this budget allocation better.Ravi, an IT professional in Bangalore, is married and has two kids. He earns a salary of Rs 1,00,000. This is what his budget looks like.

This is a good example of how a budget should look like. It has the right mix of fixed obligations, desires and investments and savings.

As good as it may look on paper, it's not always possible to stick to the budget. There might be ups and downs, which may require you to adjust your budget allocation accordingly. In situations like these, it is important to be prudent and take the right decision smartly. Thus, you need to prepare a contingency plan as well.

1. Factor-in for Deviation While allocating your budget, it is important to factor for deviation for the add-on expenses that may crop up, especially in the 'Fixed Obligations' and 'Desires' bucket. Usually, a 10% deviation should help you prepare better. Thus, in the example above, Ravi should keep aside 10% in each of the buckets to prepare for sudden surprises.For instance, the bucket 'fixed obligation' should have a planned expenditure of around Rs 45,000 while the rest of Rs 5,000 should be kept aside if there is deviation. In case the deviation amount is not used, it can go into your savings bucket the next month. This can act as a booster to your savings plan.
2. Don’t Forget Insurance While Ravi's budget may look great initially, it has one major flaw. The budget does not account for insurance expenditure. Insurance policies such as health insurance or life insurance can help you protect your finances from getting eroded in times of needs.
3. Know What You Will Eat into First in Extreme Situations It is essential to plan what bucket you will eat into if your fixed obligations rise suddenly. While most people would tend to eat into their savings by pausing a SIP or a recurring deposit plan, it can impact your finances later on.On the other hand, you need to plan well for your wishes and desires for you and your family's overall wellbeing. But knowing how much you can compromise and what bucket will you touch first can help you prepare better.

If you face a temporary liquidity crunch, it may be better to opt for a loan rather than eat into one of the essential buckets. For instance, Ravi suddenly encounters an emergency in his family and has to send Rs 50,000 to his father back home. Now, if he eats into the 'desires' bucket, it would mean jeopardising the upcoming vacation plans with his kids and wife. On the other hand, taking money out of the SIP or deposits may put his financial goals in trouble. This is where a short-term or a regular personal loan can come to Ravi's aid.A short-term loan is usually 6-months to 36 months long and can be easily repaid through EMIs. If he thinks he needs a longer time than that, he can also opt for a regular personal loan that can last for 1-7years. The best thing about personal loans is they are very easy to get, and the amount can be disbursed within 24-hours of application. Online personal loans have made it easy for borrowers to answer sudden emergencies without touching their savings or other budget buckets.

A good budget is not one that only has the right calculations. Instead, it prepares you well for the contingencies. That's because, no matter how well you plan, there will be sudden expenses that can take you off the path of achieving the financial goals. However, solutions like quick personal loans can help put you back on track, provided you have a clear repayment plan and don't enter into a debt trap.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.