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Budgeting: The basics and a little more

Budgeting seems like a hard and fast task at times, but it is not. You have to learn to manage your finances well and understand your current and past spending habits, but it becomes easy once you take that first step. The tricky part is not making a budget; it is sticking to it and instilling financial discipline in yourself. Even to reach that level, you have to start somewhere. Usually, spendthrifts end up saying things like “I don’t have time to budget,” “I don’t make enough money to budget,” “It is difficult to manage everything, there is so much going on,” and more. And the first person who came to your mind after reading this is the spendthrift in your life. It can be you, your partner, relatives, or a friend. And this is the sign that you need a budget.

Now, the question is, when would your start budgeting?

Find your motivation for budgeting

When we talk about finding your motivation, we mean finding out why that drives you to have a budget. We, human beings, work harder when we know what the prize is for our hard work—determining the “Why” for your budget would give you the push to work toward your goals. 

Some common reasons can be:

  1. Control overspending
  2. Save more
  3. Saving for particular goals like future education, wedding plans, a vacation, or a party.
  4. Get out of the debt trap
  5. Save for future purposes or retirement

So, first thing first, find your motivation. When you have set goals, you can work toward them.

Keep track of your spending habits

The whole idea of budgeting is to start from the bottom. The first thing that you have to do is understand and check your spending habits. Understanding your expenditure gives you an idea of what and where you are spending your income. Track your expenditure for the first 30 days and then divide the money according to it. But if you want to jump right into budgeting, you can begin by tracking your past month’s expenditure. Until and unless you know where your money is going, it would be impossible to stick to a budget as it would an unrealistic expectation.

Track your irregular spendings

Irregular expenses refer to the money you spend on things apart from your regular daily and monthly expenses, but we always have irregular expenses, including birthdays, festivals, events, and more. So, to plan your budget, it is better to put such expenditures on your calendar. It helps you to align your expenses better and plan ahead of time.

Consolidate your income

The right way to budget is, to begin with, your income—a clear picture of what you are earning every month and then start working on your budget. When we talk about income, we talk about the money you get to take home after tax and other deductions from your salary. It can also include the income you earn from other sources like freelance work, side business, or income from property and services. Add all your income, then divide the money accordingly. It helps you divide your income in the correct proportions and avoid irregular or unnecessary expenses.

Decide how much you want to save

As mentioned above, decide your goals. Goals can be as vague as “For future” or as specific as “INR 2,00,000 for vacation” or “INR 10,00,000 for higher education”. The difference between having vague and particular goals is to instill financial discipline. Having a target would help you decide when you need to save that specific amount and how much money you need to save in a particular month or week.

Teamwork makes the dream work

Being a team means saving and setting goals together, and the unit begins at home. If you have a partner, you can talk about your goals, set targets, and budget accordingly. You can keep separate accounts of expenditure, but you can have the same goals when it comes to savings. Maybe saving for a house, a new car, vacation, planning your kids’ education, or more. Debt and financial matters are one of the reasons for relationship stress. Financial planning can help you avoid uncertain situations and make it easier for you to keep the pressure at bay.

LABELS! Yes, they do work!

Millennials might not believe in labels, but financial advisors do! The whole point of labeling your expenses means that you don’t spend more than you need. Categorize your expenses with labels. Know where you spend your money and then categorize it into different categories. The labels can be groceries, debt or loan repayments, utility bills, savings, and so on as per your expenses. It would reduce overspending on different categories and save you money at the end of the month.

The kind of budget matters!

Yes, there are different budgeting techniques available! When we talk about two other methods, they are:

50:30:20 technique

50:30:20 is the division of income based on percentage. The 50% of your income would go to your needs, including rent, groceries, fees, utility bills, or debt repayments. 30% of your income would go to your wants, eating out, entertainment, trips, or others. The rest of the 20% would be your savings. Dividing your income in percentages would help you have the upper hand in spending; you might end up with more money to spend when you use this technique. However, this technique’s downside is that you might end up overspending and waste money on things you didn’t need. So, make sure if you have money left over from your wants, you put it in your savings and make proportions for the next month accordingly.

Zero budget technique

Businesses use the zero budget technique widely while budgeting. It also works very well for regular household budgeting. Zero budget means that you have a job for every rupee that comes in. To put it more simply, income minus the expenses is equal to zero rupees. If you spend all the money on one particular category, your budget for that category is over, and you cannot spend more on it. This technique is restrictive but turns out to be more fruitful.

Don’t make unrealistic expectations from budgeting

Unrealistic expectations are not only a waste of time but also a waste of money. Having unrealistic expectations could cost you more than overspending itself. The whole point of having the budget is not to overspend and reduce the spending on certain things. Example: If you are spending INR 7000 on your food and groceries each month, you can reduce the expenditure to INR 6000. If you keep your budget to INR 3000, it would be unrealistic. You would end up going off the budget and spending way more than you initially decided to spend. Unrealistic expectations would not only throw you off the budget but also demotivates you for the future.

Review your budget every month

Your work doesn’t end when you start to budget; it is, in fact, just the beginning of instilling financial discipline. Reviewing your budget each month will help you to analyze your expenditures and make changes where necessary. The idea is to understand where you are overspending and how you can improve it. Apart from this, it will also help you to save more money for the future. After reviewing your budget each month, you understand where you have to make cuts and spend less.

Bottom line: You might need more than just budgeting

In a nutshell, budgeting not only helps you to save money, but it can also help you to get out of the debt trap. If you are burdened with debts and finding it impossible to get out of the debt trap, you can reach out to our team. Freed is India’s first comprehensive debt settlement company. We help our customers to live a debt-free life and have a financially secure future. You can reach out to our expert debt counselors at 01246663666 or drop your details on our website. To know more about debt settlement services, visit our website now: www.freed.care.

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