What is a budgeting? How to create our personal home budget? There are many such questions come in our mind when we heard this term.

A budget is nothing but to manage money wisely by keeping an eye on the inflow and the outflow of our cash.

In simple terms it is a planning of spending and saving from our income. It is an important tool of financial planning. It’s not just for them who have limited income and want to closely monitor their money, but it is also for them who are earning high-value cheque and having multiple source of income.

Here we will learn the simple steps to take care while making a budget:

1. Assemble the details – Firstly assemble all the details like statement of bank, utility bills, credit card bills, loans etc. It will help you to take clear decisions about your inflows and outflows of cash.

2. Budget with family – It is important to make the budget with all your family members because every member has some plans regarding their expenses. So, if you are facing tough time in finances, sit around a table and discuss with them that where they can contribute in this by cutting their side of expenses. Remember small amounts can create a big difference.

3. Identify your income – Whether there is only one earning member or more, it is important to identify your income sources. E.g. Salary- 40,000+ Tuition fee- 20,000. Total= 60,000. In business income we keep the average inflow rate of money because each month is different from the other.

4. Keep emergency fund- Always remember to keep aside a percentage of income for any unexpected situations. This can only be used in emergency situation like medical urgency, you are not in job or business is closed, etc.

Ideally it should be equal to your six month’s salary or average business income.

5. Segregate the expenses- Segregate your fixed monthly expenses with your variable expenses. Fixed expenses are the same amount which you have to pay each month on a regular basis like rent but a variable expenses is something which can change based on any event day, week or month.

6. Set realistic goals – Write down your goals which are realistic and achievable. Setting of goals and achieve them are always very motivating. You may have several goals, some long term and some short term. It is always better to write them down. It will help you to act upon it.

Remember small and achievable goals also build self-esteem and confidence within you.

7. Separate your needs and wants – Identify and separate your needs or necessities from your wants.

Ask yourself, Is this item or this vacation is really needed? Skip daily snacks or coffee outside, eat home-made meals. If in case you are not sure if an item is a need or just a want, just do one exercise, left it for a few days and if you don’t feel the need during this period, it may be your want.

8. Get rid of debt – Debt is something which will always keep you on the back-foot regarding your financial. Stop using credit card. Try not to buy things on credit.

After completing your goal of emergency fund, use all the extra funds to pay your debts. Use your bonus, your increment to clear the debt first.

9. Create and track – Create a common template of budget for each month it will help you to track and monitor it more effectively.

Final words:

Don’t feel depressed or low as you have to sacrifice the things you love the most or change your lifestyle by cutting your expenses. You cannot change your habit over-night.

Implement the changes gradually but keep the momentum. And always stick to your budget to be financial independent and debt free.

Save Money & Money Will Save You