Despite the fact that most of you do have a certain sense of budgeting in your personal finances,you can slip up on certain aspects which turn out to be financial losses in the long run. The essence of smart budgeting is not only to save and invest more but create financial freedom that allows us to enjoy life the way we want while creating financial security for us and our families. Before getting into the details of personal budgets it is essential to identify the requirement of such an exercise which shall consume some time and effort from our busy schedules.
Do you need a smart personal budget?
Here are a few questions which will provide an insight into why one should make a sincere attempt to create and stick to a sensible personal budget:
Do you often miss out on payment of regular bills such as electricity,water,telephone and premiums of insurance policies?
Do you delay payment of credit card dues and incur penal charges before paying up the full amount?
Do you miss out on the deadline for income tax returns filing while regularly paying all the taxes?
Have you ever bought a costly gadget from the monthly salary and then spend the month on petty savings?
If the answer is yes to any of the above questions,there is definite need to create and work on a smart personal budget.
7 step laymans guide to smart personal budgets
Financial Statements: Get hold of the details of your financial statements including utility bills,investment receipts,demat account statement,Form 16,ITR,bank statement,Form 16A and credit card statements. These details shall provide you an insight into your monthly income and expense status. This step is the beginning of a comprehensive and accurate budget for personal finances.
Income: make a detailed list of income from all possible sources that include salary,rental income,profits from investments,bonuses received and miscellaneous income like credit card points and gift coupons. Also find out your annual income.
Expenses: Make a comprehensive list of all expenses including grocery,utility items,rent,insurance,travel,outings,annual premiums,one time purchases etc. Listing these items will indicate the places where non essential expenditure has been incurred.
Comparison: Now is the time to compare both the lists and check whether you have been saving adequately for a secure future. In case you have been both saving as well as incurring losses from outstanding dues such as credit cards or personal loans this is the time to decide to cut a part of your savings and do away with high interest credits that you may have. This will help you off load some of the unnecessary expenses which are of no use to you. Also streamline your savings into investments by taking SIPs of proven and trusted funds. A little research on the internet will get you all details to help make up your mind about investing.
Eliminate the non-essentials: Once the detailed income expenditure pattern is before you try to pin point expenses that could be done away with. Prioritize your needs and plan expenses accordingly. Remember to cater for annual expenses in your monthly savings. List out the required expenditure that you deem fit on a monthly basis.
Envelope Method: This is an effective tool to track expenses. Put aside planned sums as per expenditure list. Spend on that particular head only from the envelope ear marked for it. This will indicate to you by the end of the month as to what goes wring and why.
Review and Update: In a couple of months you shall be able to pin point the areas where your estimates were wrong. Personal budgeting is an ongoing process and requires analysis every month to incorporate changes as they present themselves.
Points to Keep in Mind
Despite all previous failures at creating and maintaining a personal budget,there is no need to despair or give up. It is essential to bear the following points in mind:
A positive approach is essential to any good planning. The same is applicable to finances too. Focus on what you wish to achieve through the budget like saving for a foreign trip or upgrading to a better car etc.
Be enthusiastic about the planning process despite initial setbacks. Things will start falling in place over a period of time. The key is to keep at it for a sustained period.
Be realistic about your plans and expectations. Never allow budgeting to sweep away the pleasures of life which is the first reason why you work hard and earn.
With a little sincerity and effort one can easily incorporate a disciplined financial budget into personal affairs. This will not only provide financial security but also enable you to enjoy the fruits of your earnings.