Do you routinely face a financial situation where you are left with no money at the end of the month with all your salary is spent with little savings? If so, you need to carefully look at how you budget for the month. You should ideally plan your expenditure in a manner that you have some saving that you can invest for your long-term financial security. Good household budgeting should have long-term goals in mind. Thus, your monthly budget should not only include your monthly EMIs but also your monthly SIP payments.
Here’s are a few tips to plan your budget well enough to meet your financial goals.
Understanding your current situation
=>Pen down your earning: The first thing to do is to write down your income components like your monthly salary, annual/quarterly bonus, incentives or any other remunerations, etc. Also, you should calculate your taxes well in advance so that you can plan your tax-savings accordingly.
=>List payments to be made: Make a list of all payments, including your mobile bills, electricity bill, insurance premium, EMI outgo, income from various sources, etc.
=>Categorise your expenses: This should include how much expenses you incur on daily transportation? What are your monthly expenses for buying groceries? How many times do you go out for vacations or for dining purpose only? Similarly, make note of your discretionary expenses, not buying things which are not necessary for you, can help you save a good amount on monthly.
=>Debt repayments: Always try to lower your debts as much as possible. Even a small credit card bill is also a loan taken from the bank. You must make the repayment on time. While taking a personal loan or any other loan, you should repay EMI's through ECS mode and also, include this EMI amount to your overall expenses while preparing a budget. Be cautious about certain payments which have to be made on annually or semi-annually basis.
Creating a budget
Once you have identified your earning, expenses and debt repayments, you should start to budget. A budget can help you standardise your fixed and variable expenses whereby you can easily generate some savings too. Always stick to the new budget till your income or expenses increases.
Set up your plan
While setting up a plan, you need to have proper savings component attached. Without savings, one cannot plan for disciplined investment over a long term to meet his/her financial goals of life.
=>Make scope for savings: Household budget are only prepared well if you have done some savings out of it. Most importantly, you should have proper control on your savings. Calculate your savings ratio. Ideally, your savings should be around 20% of your total income after incurring all your expenses. These savings help you in making good investments towards your financial goals.
=>Create exigency fund: Emergency fund should be saved from your overall savings of about 10% a month. This should equal to almost 3-6 months of current expenditure. This amount should be purely deposited into savings bank account or liquid funds. Instant cash should be readily available to you in case of any emergency needs like paying medical bills, income required during a job loss, or purchasing something of extreme need on an urgent basis without indulging into debts.
=>Invest and review your goals: When savings are linked towards financial goals through investments, it needs to be reviewed and monitored. Mostly, the investment avenues are market linked which gives a higher return and since, the market remains volatile, you need to analyse your fund’s performance from time to time basis taking the help of an investment adviser.