6 Important Steps for Making Personal Budget

Personal budgeting is a great way to manage and control personal finances. It helps balance the income and the expenditure, thus making it easier to achieve personal financial goals.

• Plan the monthly spending
• Save for emergencies
• Sort financial priorities
• Build wealth consistently

Let’s look at 6 easy steps to develop your budget for a better grip on your money –

Keep your key financial papers handy before you start making the budget. Documents like investment plans, bank statements, utility bills, payslips, credit card statements, and loan statements, would be required for the financial planning.

Whether you are salaried, a business person, or retired, take into account your take-home income along with other revenues like rental income, freelance earnings, or pension. In the case of variable income, consider the average monthly inflow of funds.

Outline all monthly expenses, like – loan EMIs, insurance premiums, utility bills, grocery expenses, entertainment overheads, personal care/grooming costs, staff salaries, conveyance costs, travelling, and savings.

Segregate fixed expenses from variable ones. The fixed ones are rent/mortgage amount, loan EMIs, staff salaries, investments, etc. Whereas expenses like travel, grocery, and credit card payments, eating out, utility bills, etc., vary from month to month. After segregating, assign the spending range to the fixed expenses, moving to the variable ones. After earmarking the fixed expenditures, adjust the variables suitably.

Income higher than the expenditure is an ideal situation. The surplus income can be put into savings or debt clearance.Some financial experts suggest the budgeting mantra of ‘50-30-20’ where the allocation is –

• 50% for ‘Needs’
• 30% for ‘Wants’ and
• 20% for ‘Savings and Debt Repayment’

If expenses exceed the income, see the red flag and make suitable changes in spending habits.

For higher expenses, fine-tune them, especially the variable ones. These adjustments can be made in the ‘Needs’ category that would not affect your basic lifestyle. However, if the gap is glaring, trim down your fixed expenses too and work towards the escalation of income.Now once you learned how to make a budget , ensure that –

• You are carefully monitoring your expenses
• You are recording any unforeseen or emergency expenditures
• You stop spending in the variable category on meeting the cap
• You stick to the goal of keeping your expenses equalized, if not lower, to your income.

Learning how to make a budget is an evolving activity. Don't worry if you feel like improvising your budget sheet. In situations like a change of job, emergency expenditures, sudden travel plans, under/overestimation, etc., review all the cost heads.The idea is to have a practical budget that would work for you. If it isn’t working, tweak it to set it rolling again.

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.