Every month, I find I don’t have enough money; if the month were only 20 days long, budgeting would be easy.
Daily spending and saving decisions are at the centre of financial planning. A budget, or spending plan, is necessary for successful money management. The main purposes of a budget are to help you:
- Live within your income
- Avoid borrowing more than you really need, if at all you have to borrow
- Reach your financial goals
- Prepare for financial emergencies
- Develop wise money-management habits
Four Practical Steps to Budgeting
Add Up Your Income
Estimate Your Expenses
Your budget starts with creating spending categories. How much you budget for various items will depend on your current needs and future plans. A detailed record of your spending will help you find out how much to budget in those categories.
Here are some broad categories as samples:
- Housing – (EMI or rent)
- Electricity/phone bills
- Food
- Household Expenses
- Transportation
- Entertainment
- Eating out
- Savings
- Miscellaneous
Calculate the Difference
Keep records of your actual income and expenses and look out for any “budget variances” – the difference between the amount you budgeted for the month and what you actually spent.
Track, Trim and Target
As you track your monthly expenses, you may need to trim them. Reducing an expense is usually easier than cutting it out altogether. Budgeting is an ongoing process. You will need to review, and perhaps, revise your spending plans on a regular basis.
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