Unless you belong to an industrialist family or have inherited billions in fortune, living your life without a budget in place can be disastrous. This is true for all especially salaried people whose expenses depend on how much they earn and who intend to save or invest in the long term.
Keeping a tab on spending habits is as essential as keeping track of how much salary you get in hand. Regular budgeting reminds us of our financial limitations, thus, helping us avoid penury in the latter half of our lives.
There is a reason why you must budget your finances. Unfortunately, many people do not realize the importance of budgeting early in their lives. Deemed essential to financial management, budgeting assists you in setting short and long-term goals, allocating resources to areas of greatest need, and keeping track of your spending.
Budgeting can assist you in staying on top of your bills, saving for emergencies and retirement, and identifying areas where you can cut back. Apart, it ensures regular savings while helping to achieve financial goals in the future.
The first step to working on a budget is to start working gradually towards creating a monthly budget which can then extend to a yearly savings and spending plan. To work on your monthly budget, you may try the following steps.
Be aware of your earnings
Your earnings must not exceed your expenditure but for that, you must first be able to gauge how much you get in hand post all the deductions towards insurance, mandatory savings funds and taxes. Once you are aware of your monthly income, you must check if you have access to secondary income too that you may pile up on your existing income before you plan your budget. Check your investments too from where you earn regular interest income too.
Decide your savings
Do you check how much money you save every month, or do you save only after you have spent a part of your earnings? Many people commit the grievous mistake of saving money only after having decided on their expenses. This influences both savings and spending habits in the long run.
However, to ensure smooth savings, you must also track your expenses too, thus, enabling you to identify areas where you can cut back on your tendency to spend. Saving and spending are two important aspects of financial management, which must be done responsibly.
Know your priorities
Do you have any financial goal(s) in mind? You must harbour financial objectives like saving for a home, paying off your debt, setting aside a lump sum for your child’s higher education or marriage, and investing enough for retirement by regularly putting some money in a retirement fund like the National Pension Scheme or a pension plan or paying premiums of your life and health insurance policies, etc.
These objectives must be specific, measurable, and time-bound while being realistic and achievable considering the individual's current financial situation. When you spend, decide between your needs and wants. This will help prioritize your spending habits and refrain you from being a spendthrift.
Have a budget in mind
Start with creating a budget to decide your domestic expenses. Decide which expenses are utmost necessary and must be paid for, be it household expenses or loans that must be repaid or prepaid to escape the burden of increasing loan interest rates. Budgeting your savings and expenses for your home is the first step to working on your money today so that the same can work for you tomorrow.
Less dependence on credit cards
Have you seen some people spending recklessly using their credit cards? This is because they do not realize how they are purchasing using credit and must repay the amount later, albeit with a little bit of interest too. Seeking immediate gratification is the reason why many people rely on credit facilities or resort to “Buy Now, Pay Later”. Instead, paying using UPI or debit cards or in cash ensures less dependence on credit and a better understanding of how much is being spent.
Stick to your budget
Regardless of how quickly your expenses seem to mount, you must try to stick to your budget. It may be overwhelming at first, but once you are thorough with how much money you must save and be willing to invest for the future, you will automatically be able to track your finances. Balance your savings and expenses and be sure to adhere to your idea of being true to your budget.
Creating a monthly budget and working on it takes time and effort. However, it will serve you the much-needed respite from seeing your funds dwindling away.