Budget is an estimate of expenditure in accordance with income for a period of time but in most cases, it’s monthly. Similarly, a practice of analysing and preparing a budget is called budget planning. Let me clear that in this post I am covering personal budget planning.
Planning your personal budget is significant for three reasons:
- To know if you are spending more than earning. For example, you’re earning £500 and spending £600 then you sure in the loss. This you can ascertain by budget planning. because nowadays we are just swapping cards and payments done. So we don’t know how we are spending.
- To realise what you can afford. As you plan, you come to realize that what are you sparing? As needs be, you can put away your cash, set spending objectives in the event that you want to collect something eg, a vehicle, a house, and so forth.
- For future planning. If you have kids you know that they need a good education. In the near future. By planning your budget, you can decide to save and even create an education fund for your kids.
Creating a Budget (Step by Step)
Now, you know the importance of budget planning. Then let’s start making a monthly budget planner for your household expenditures. You can create this in a spreadsheet, a notebook or any of your favourite app. You can even use a budget planning app like Yolt, Fudget, etc.
1. Write down your Net Income
Your net income is total income excluding taxes. Start by writing net income to know what are incomings. Include all kinds of income, be it rental income, any cash incentive, or if you’re generating income through online. But you need to exclude income which is not yet paid to you like interest on fixed deposit, income from shares which are not yet matured, etc.
2. Include Recurring or Fixed Expenditures
You have many things in your house which are billed on a fixed amount every month such as house rent, TV service subscription, internet bill, domestic help services, kids’ school fees, etc. Put them in a single category because these are mostly uncontrolled spending.
3. Note down Non-Recurring or Variable Expenses
These are not fixed spending and changes every month. In some cases, it doesn’t occur frequently such as travel expenses, birthday party or wedding of a family member, uncertain medical expenses, etc. Put them in one category because these can be controlled but not all.
4. Set Goals
Once you created a budget plan and put all the particulars in it, you know where you need to work. Generally, you’ll find that you are spending too much on outside food, fashion clothing or accessories, beauty products especially after being influenced by online influencers, home decor, etc. So you need to cut here, but this should be systematic and realistic. For example, if you decide to cut off your spending on clothing, you should create a goal like ”I’ll buy clothes once per twice months instead of every month”.
5. Adjust Unnecessary Spendings
After setting goals, you need to implement it. Yes, start to adjust unnecessary expenditure.
6. Review Time to Time
You have already planned and implemented your personal budget but that doesn’t mean it’s over. You need to review your budget plan time to time particularly on a monthly basis to make adjustments and analyse expenses over income. Sometimes, there will be seasonal expenditures due to any festival, holidays, etc. In this case, you can save more in previous or next month to balance the things.
Tips for Creating a Perfect Budget Plan
- Create an emergency fund and keep 20% of your net income into it. This is completely ’not to touch fund’ so that you will be ready for an uncertain future. Else, you can invest this amount on any easy to mature investment scheme with less risk involved. So that whenever you want you can take your funds out immediately.
- Improve your financial literacy. Because people can be easily trapped if they are not well versed with finances. Also, it’s better to know the financial opportunities available in your country. Further, financial literacy is helpful in budget planning.
- In a situation of no leftover money try to create a second income option. Any income-generating opportunity takes time to grow, better to start a second income alternative and don’t depend on a single option.
- Research well before investing. Never put your money anywhere if you’re not 100% sure about the returns. Do lots of research on your own before investing the amount.
- Determine your net worth. Budget planning should not be limited to income and expenditures. Once in a while, you should assess your net worth means the accumulation of your assets and liabilities. Assets mean the property you own and liabilities debt you owe.
Please let me know how you prepared your budget in the comments below. If you liked the post, please ❤️ it and share it.