9 Steps to your personal budget
Read in: 4mins, Published On , 24 Jun 2019 By TT Connect
A budget is telling your money where to go instead of wondering where it went, it is said. Indeed, it is a magical tool that lets you control your finances. Want to have a surplus budget? Here’s a comprehensive checklist to ensure one:
Take stock of your financial life
Befor your create your personal finance budget, know your stand when it comes to your money. Make a list of all your assets and liabilities. Next, add up all your sources of income. Also, list down your expenses – regular ones and impulse or sudden.
You must because this becomes your starting point for budgeting.
List your goals
Rather than saying that you want to travel someday, say you want to spend your 30th birthday outside The Eiffel Tower. Have specific goals and classify them into short-term, medium-term and long-term goals.
You must because clearer goals motivate you to save. The more you save, the more are your chances of having a surplus budget. Also, ensure you don’t set unrealistic goals. If you are unable to achieve them, you are likely to get demotivated and thus, likely to discontinue saving.
Track your expenses
Track every expense that you make – Be it as big as buying furniture or as small as paying for the cab. Clearly write down or update individual expenses. Avoid clubbing expenses because you fail to distinguish between rational and irrational spending.
You must because even seemingly small expenses can lead to a money crunch over time. Also, ensure you don’t rely a lot on credit cards. Reckless swipes can increase your Debt burden drastically.
Demarcate your needs and wants
Wanting clothes to cover your body is a need, wanting the latest trending brand is a want. A realistic budget provides for both, but in reasonable proportion. Understand the difference between your needs and wants and prioritise the former.
You must because if you splurge on your wants, soon you will not have enough even for your needs. Also, ensure you don’t ignore your wants completely. After all, you need a realistic budget.
Automate your savings
A budget is all about earning, saving and spending. Automate your savings to become a smart and disciplined saver. For example, instead of saving under your pillow, you can invest your money in Liquid Mutual Funds through the Systematic Investment Plan (SIP) route.
You must because you will not only save a fixed amount every month but also earn returns on it. Also, ensure you don’t try to save unreasonably because you can face Liquidity issues
Save for emergencies separately
To have a surplus budget, or have income higher than expenses, save for emergencies. Allocate some portion of your monthly salary to an Emergency Fund. Mutual Funds can help you build your fund faster.
You must because you might dig into your regular savings or add to your Debt in times of medical, legal or other emergencies. Also, ensure you don’t touch your emergency fund for meeting ordinary and regular expenses such as your EMIs, bills, etc. Otherwise, there is no point in calling it an ‘Emergency Fund’.
Prioritise your Debt
Classify your Debt into highinterest and low-interest Debt. Pay off those carrying high interest first. If you receive any additional money, say a bonus or gift from relatives, use it for lowering your financial burden.
You must because it is said, interest on Debts grow without rain. Also, ensure you don’t keep your Debt outstanding for a long time since it affects your credit score.
Invest your savings to allow them to grow. Long-term investments in Equity Mutual Funds help you beat inflation. With Equity Linked Savings Schemes (ELSS), you can also save Tax on your investments up to Rs.1.5 lakh annually.
You must because you can create your own source of income with regular investments. Also, ensure you don’t put all your eggs in one basket/ all your money in one asset class. A diversified investment portfolio helps you manage investment risk.
Stay committed to your budget
Mere creating a budget is not enough, you must follow and stay committed to it. Keep reviewing your budget regularly; modify if needed. You must because the basis of your budget – your financial state may change. You must always make sure that your budget suits your financial state. Also, ensure you don’t follow your friend or family’s budget. They may not have the income, expense and goals as you.