Full marks for intention. Really, give yourself a round of applause. You are about to take one of the most important steps in your life about making a budget – and guess what, it doesn’t cost money. All it requires is some discipline and a little motivation. I can’t help you much in the former, but for the latter – I’m right here!
If you feel that the word budgeting is just another word for depriving yourself of money, or getting bullied by an excel sheet, or simply going to carry the tag of being “Cheap” – you are not informed well. Budgeting is far from both these ideas. Budgeting, is a roadmap, a guide, or simply put a “spending plan” for you to reach your goals – no matter how short term, or long term they are.
I welcome you, to the world of a Budget, with a big smile!
There are three main types of Budgets.
- 50/30/20 Budget
- 5 Category Budget
Perhaps the most simple of all. It goes something like this – put the top of your money into a savings account and spend your way throughout the month. It’s a simple, gets right to the chase, and it’s easy to stick to, isn’t it? You are saving exactly what you intend to save, and the rest you know how to deal with.
Problem is that many times during the month – you land up depleting all your funds way before you get the next paycheck. That’s when you need to figure out “Where did my money go?”, for that, there are the other two types of budgets, the 50/30/20 Budget, and the 5 Category Budget. Will discuss this in future blog posts.
Always remember that a budget is to make you conscious about how you’re spending your money. Whether you are a working adult, a student, a housewife, or a retired person – a budget is very important to know where your money is flowing.
Before you get into creating a budget, make sure you have the following targets in mind
How much are your emergency savings
The idea behind emergency savings, or a rainy day fund as some call it, is to ensure that if an unexpected event hits you, you are ready to deal with such-such an unfortunate event. Things like losing your job, an emergency medical procedure, car breaks down, a death in the family, the roof starts leaking, etc – you’re financially able to deal with such events.
By the rule of thumb, I personally keep 3 months of my monthly income in emergency funds. You can choose your target.
Be nothing but RUTHLESS in getting out of debt
Sometimes a person makes a wrong financial decision by taking a loan at a ridiculous interest rate. Credit Card debt is a good example of this. Don’t let it slide, get rid of it as soon as possible. A budget will help you keep this target in mind.
Identify your Bigger Goals
Down payments to that new car, new home, or simply vacation money, or holidays (eg. Diwali, Christmas, etc) expenditures – creep up without you realize it. Unless you are fortunate to get a Diwali/Christmas bonus from your employer – you’ll be ill-prepared this year – just like every year. Don’t make that mistake this year, and a budget will help you reach there – only if you plan it really well.
It’s not who you are, but what you do
There is no right way of doing your budget. You can do it by a simple paper and pen, use Microsoft Excel, or Google Spreadsheets for it, or a wide array of free software available to do your budget. It is the intent, for which you deserve a pat on your back. Remember that budgets are tools that make it easier to be conscious about how you are spending your money and I hope after reading this post, you really put yourself to it.