How To Make a Successful Financial Budget?

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Do you know why the Titanic collided with Iceberg? It was because they believed with conviction that nothing could destroy that mighty ship and did not provide sufficient lifeboats. So, if you think you are secure from future uncertainties, then you might be on the wrong track. There might be events beyond our control in a life that are unavoidable, like the corona pandemic. But does that mean that we should stop living? To control your life, you need to double-check your spending patterns. Provide enough for your savings and investments, debts, and liabilities. For that, you need a tool to help you track your finances

 

What is a monthly budget?

A monthly budget makes people think that here comes something that curbs our freedom. It is not true at all. You should not develop a budget that is inconvenient to you. You will not have to forgo entertainment in life or time-out with family. You want a luxurious outfit or jewellery. Your budget will not stop you from spending on it. Then when is it relevant?

You were window-shopping, and suddenly your eyes landed upon something you always wanted, and you spent immediately, not thinking of your expenses for the month. Later in that month, you might regret it a lot that you wasted money unnecessarily. Rather than having such guilty trips in life, plan ahead. Save for what you always wanted, keeping track of your expenses. Find more earning opportunities to get it if your bills do not permit it. 

A personal budget is a realistic track record of your spending patterns and, it encapsulates your financial history. It is a barometer of your financial health. Rather than being a disciplinarian, it is a tool that helps you get whatever you want in life. Are you amazed? Let us see how you can make a successful budget.

 

Steps for making a great budget

Gather all the Data

Well, this is never an easy task. But, you have to endure that if you want a successful financial life. What are the data that you need to gather?

• Credit card bills
• Utility payments
• Loans and mortgages
• Insurance premiums
• Investment data
• Savings data
• Different Income statements if there are multiple sources of income

 

Classification 

The next step is to differentiate between income and expenses from the paperwork that you have collected. Try not to miss any paper in the process, as that might land you in significant trouble in the future.

Income Data

Now, take all your paperwork on your income. Now, this might not be a problem for a salaried person. But what if you are a businessman or self-employed? Your income might be varying, in such cases. Record each income transaction and then sum it up. This income could also include your dividends earned and the amount obtained by trading securities. 

Expense List

Before recording all the bills due, make a list of all the expenses that might incur that month. Think about the payments you have to make, which are not in the bills like groceries, the insurance premium dues, Savings, etc. Do you have a monthly or weakly eating-out with family habit? Record that. 

Similarly, if you have travel plans related to business or outings with family, higher education expenses of kids, plan to enrol in some courses or attend any paid workshops. You can even include hanging out with friends. Transportation costs are yet another. If you have pets, do account for that too.

Classification of Expenses 

You can see that expenses fall into two broad categories. They are the predictable ones and the non-predictable ones. Categorise all the predictable ones as fixed expenses and the others as variable expenses. The predictable ones are the ones whose value remains the same mostly per month, like monthly EMIs, monthly fees, etc. The variable expense varies according to your spending patterns.

Once you have done it, tabulate both the expenses separately. Then add up. This will give you a pretty good idea about your expenses. Fixed and variable overheads have relevance not only in business but also in daily life. We will continue more in the next section. Be Informed, Be secure.

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