How To Make a Successful Financial Budget?
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
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.
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
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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