Budgeting is not magic, it is an art, and it develops only over a period of time with regular practice.
Managing cash inflow and outflow is the first step in financial planning. Budgeting is vital to gain control over your monetary life, so always be ready and avoid shocks, save for a major buying, stay away from debts, develop your lifestyle, and also retire early.
Most of us dither to make a budget, believing it’s about trimming the fun in life. However, budgeting is not about trimming fun but about mindful allotment of money. Once you begin spending consciously, you will find a way of having fun within the limits of your earnings.
Focus on every bit of your financials while making a budget. Below are some steps to help you to prepare a successful budget-
1) Check your monetary statements
Keep a check on your utility bills, demat account statements, receipts of other investments, Form 16, bank statements, credit card statements and many similar things. The motive is to bring out the periodical average of earnings and expenditures. Thus, the more particulars you get the more appropriate and perfect will be your financial plan.
2) Prepare a list of earnings from all sources
It is simple to list down the earnings for both the salaried and self-employed. Usually we lose track of earnings linked to savings, rent and other varied sources. While penning down all the sources of revenue, we also require keeping in mind any yearly income. Don’t overlook recording the returns received by cash equivalents, like meal voucher, credit card reward points and similar ones.
3) List your total expenditure
It’s easy to note down all your major expenditures. But recording assorted and trivial costs is not so easy and that is the time when collected financial statements would help. Don’t fail to remember yearly costs like car insurance and property tax. Once you have prepared a list of all the costs, divide them into fixed costs and erratic costs. This sorting out will give a much clearer picture.
Listing down expenses time to time gives us the exclusive chance to visualise and find out if any cash goes for things that we do not require.
4) Be aware whether you are saving or over-splurging
Now that you have the entire information of your whole earnings as well as total spending, minus the total spending from your total earnings to find whether you are saving or spending more than you should. If you are saving capital, you must channelise it into preference areas such as any kind of loan to free from debts. You can also put in the savings in your retirement amount or your children’s future planning. But, if you are on over-splurging; you need to make few alterations to expenditures.
5) Reassess your expenditure model
Give notice to the erratic expenses on your expenses list that is where you can cut short some expenditure. Monthly, one requires keeping aside right amount for balanced yearly costs. Find out the cause for over spending as most of the reasons would be emotional purchasing or spontaneous shopping. Once you find the real reasons for overspending, target on diverse steps to be taken to fix the same.
6) Are you following the plan?
Take an hour out from every month to evaluate real expenditure with budgeted expenditure. If there is a negative deviation, find out about likely steps to manage them.
7) Find out reasons behind the failure of earlier budgeting attempts
Budgeting is not just a one-time activity, instead an ongoing process. Generally we begin budgeting with a positive intention but with passing time, the motive may get turn aside due to our efforts on dieting or exercising, for example. Thus, one needs to realise the behavioural phase of budgeting.
Don’t focus on negative side; instead think of the benefits of successful budgeting and what you will achieve by designing a budget? You can save sufficient for a vacation or plan for normal post-retirement revenue.
Budgeting might grow as a habit and is likely to become boring and dull over a period of time. To avoid getting bored of this habit, set a few short-term goals like if you’re able to accomplish it then reward yourself, it could be a good motivating aspect. You can also connect with forums associated with money management.
The result of the budget should be practical as over-expectation may demotivate you. Budgeting is not magic, it’s an art, and it develops only over a period of time with regular practice.
