An idiot with a plan will defeat a genius without a plan. This old saying has proven its point time and again in real life.
A budget is a financial plan that you make to maintain control over your expenses, savings, and investments. A simple account has the potential to streamline your financial well being and add much stability to your financial health.
People use many tools and methods to create and maintain a budget; however, there is no hard and fast format that you must follow. A great store is one that works best for you.
Let us look at some basic concepts that will help you start creating an account and choose the format that works best.
Find out your monthly income - If you are a salaried employee, then calculating your after-tax income should be no big deal. However, if you are a working professional or own a business, finding your monthly payment can be difficult. While your income might not be stable and fixed each month, you could take out an average over a more extended period and consider your monthly payment.
List your monthly expenses - Tracking your expenses is a crucial part of budgeting. If you do not record all your costs, you could use your bank statements to determine your costs. You could choose to be less detailed and note down just rough numbers with categories like amount x for food and y for travel, but it is best to be as precise as possible.
Study a model budget - There are many model budgets available online that you can refer to. One famous technique is the 50:30:20 rule, which says you should spend 50% of your income on needs, 30% on wants, and 20% you should save. Keeping any of these that you like the most and find practical, you can create a budget for yourself.
List down necessary expenses - Now is when you are done analyzing your past habits and creating goals for the future. It is highly recommended that you keep these as realistic as possible so that it is easier to stick to your budget. Begin by listing down all necessary expenses and ensuring that they are completed within your allotted amount for needs. You must try to be as specific as possible when it comes to categorizing your expenses. Look at your past spending habits and understand key areas where you spend often.
Test, Review, and Improve - If you could not stick to your budget in the first month, do not get disheartened. An account is a plan which is based on many assumptions. It is natural for some of them to be incorrect. You must review your budget each month to see which sections you are over/under spending in. These are the areas that you should rebalance and focus on from the coming months. Remember, budgeting is a learning and daily self-improvement process.
(Check out 'Learn & Grow with Wizely' 'to read and learn all about the fundamentals of budgeting.)
