Just as a government has a budget to manage the internal operations of a country, the average person needs a plan in place for managing their finances. If a budget is not set in place, tracking the expenses can become cumbersome. It is often heard that individuals in employment find it quite challenging to work on the expenditure side, and the most common reason given is lack of earnings. Nevertheless, budgeting is a good strategy to reduce the financial burden one experiences in life. Let us see how budgeting can be controlled and monitored.
What is a Budget? Key Budgeting Tips for Beginners
It is basically a plan that outlines one’s expected revenue or income and expenditure. It can actually be used to set limits on spending and help in saving for future needs. The two main categories of expenses in a budget are:
- Planned Expenditure: These are mandatory and unavoidable expenses such as housing, appliances, schooling, etc.
- Non-Planned Expenditure: These are additional and include unforeseen medical services and illness or repairs that may arise.
Like goals, a budget can be made for different timelines:
- Daily
- Weekly
- Monthly
- Half-yearly
- Yearly
In the case of a company, allowing workers to create a budget on a monthly basis is a big step forward. It can be simplified by requiring them to segment it into weekly portions.
Types of Budgets: Budgeting Tips for Every Financial Need
Every budget serves different needs and priorities. How each budget is crafted is up to the individual’s personal circumstances.
- Household Budget: For controlling and monitoring family or home expenses.
- Student Budget: Intended to control a student’s personal expenses.
- Corporate Budget: To oversee spending and finances in a corporation.
- Government Budget: A state or country budget is made ready by the government to check on and manage a countries or states finances.
Budget Terminology to Understand Budgeting Tips Better
Knowing the most commonly used terms associated with the budget is important in managing finances well:
- Deficit: This refers to an excess expenditure over income. The shortfall or gap is called a budget deficit.
- Surplus: The positive term that defines the gap when income outshines expenses is a surplus budget.
Benefits of a Budget: Why Budgeting Tips Work
To create and follow a budget is easy to do and even easier to maintain, as there are lots of benefits:
- Prevent the spending beyond what is budgeted. Waster expenses are dramatically eliminated.
- Ensures that assets are set aside for possible use and increases returns on investments.
- Helps in achieving financial freedom and goals.
- Makes provisioning for unpredicted situations possible.
Key Elements of a Quality Budget: Smart Budgeting Tips
Here are the features that are basic on how to make effective budgets:
- Note down your earnings or as well as your spend in order to monitor actual expenditures against the preset budgeted expenditures.
- Make a budget that can be altered so as to give your budget the flexibility it needs when circumstances change.
How to Create a Budget: Practical Budgeting Tips to Get Started
There are numerous ways to make a personal budget.
i. Microsoft Excel
Microsoft Excel has a suggested budget for its users. There are templates that can be downloaded free of charge that can be edited to fit a person’s style.
ii. Mobile Applications
Many budgeting apps are available in Google Play Store as well as Apple App Store. These apps help to enhance the budgeting and tracking of the finances.
iii. Pen and Paper
Despite the progress of technology, the pen and paper method is still very much alive. Make a list of your expected earnings and your fixed and variable expenses.
The 50|30|20 Concept
To divide one’s income, the 50|30|20 rule is quite simple and easy to follow.
- 50% goes to basic needs, such as groceries and bills (these need to be purchased without extra funds).
- 30% is for non-essential items like eating out, and other leisure activities (like going to the cinema and shopping).
- 20% can be earned for future purposes, which means savings or investments.
Sample: Budget Allocation for Mr. A
A starting Mr. A’s apples to apples’ budget allocation is A. He earns a total of Rs. 50,000 a month, so he splits it according to the 50|30|20 principle
- 20% for Savings: Rs. 10,000
- 30% Other Expenditures: Rs. 15,000 (This goes to dining out, outings and entertainment)
- 50% for Essential Expenses: Rs. 25,000 (This goes to fixed expenses like groceries, rent, utilities)
Emergency Fund
To put it simply, any amount left after paying all your bills should go towards savings as residual income. Experts suggest putting aside an emergency fund that is worth 6 times your salary as it acts as a financial cushion for situations like a medical emergency or unemployment.
Key Takeaways: Budgeting Tips for Smarter Financial Decisions
To sum up, here are the most vital concepts when it comes to financial management:
- Note down all expenses in order to have greater control over your finances.
- Draft out a budget to track income and expenses.
- Create a monthly budget over a longer period and divide it into days or weeks for better monitoring.
- Follow the 50|30|20 model for balanced spending, saving and investment.
- Set aside an emergency fund to help fend off financial difficulties in the future.
