Your Monthly Budget is your Foundation
As mentioned in the previous blog post, making a list of your income(s), savings, assets and liabilities will give you a good idea of how to move forward while managing and leveraging your income(s) to grow your wealth steadily in the best manner possible. All those variables put together form your budget.
The importance of your personal monthly budget cannot be stressed enough. This aspect of your financial plan is so important that ignoring it would leave you without a direction to move toward. Your monthly budget will tell you exactly how you should be utilizing your money and more importantly, how you shouldn’t.
If you are new to budgeting, you might feel overwhelmed at first, which is perfectly natural. However, there’s no need for you to remain lost in that state. You don’t even have to break your head about how to make a budget format! All you have to do is google “personal budget format” and you’ll receive many sources for downloading budget formats, either in image files or document files such as Microsoft Excel. If you prefer using a mobile app for your convenience, just type “personal budget manager” in Google Playstore or iTunes and you will find many free apps that you can download. Please do check out the reviews before downloading. You may also have to try a few apps, before you settle on an app that is user friendly. I would suggest using a Microsoft Excel format for the budget initially, because it gives you the entire picture of your state of finances on a single page.
Coming back to the monthly budget, take a printout of your monthly budget format and fill it out to include your current income(s), savings, assets and expected monthly expenditures. Your expenditures will include everything that you usually spend money on during the month, as well as your loan payments, if any. After this is done, all you have to do is, deduct your expenditures from your monthly income(s) and you will arrive at your net savings for the month. If your net savings is in the “Green”, meaning that there is a certain amount of money that can be carried forward, it’s a good start. On the other hand, if your net savings is in the “Red”, meaning that your net savings have gone into negative figures, it means that you have spent more than you have earned. There is a cause to be concerned in this condition, since your present lifestyle cannot be sustained in this manner and you would have to take some hard decisions regarding your expenditures. You may have to explore opportunities to either generate more income or reduce your expenditure. This is the reason that the first budget should preferably be on paper or on a Microsoft Excel document. The visual effect of seeing your incomes, savings and assets on one side while your liabilities are on another side and the net difference between the two sides, will give you enough reason to start thinking seriously about your personal finance.
Once you have made the initial monthly budget and analyzed your current expenses, you can set yourself a financial goal. For example, your goal would be to invest INR 5000/month through an SIP (Systematic Investment Plan) into a Mutual Fund. This would mean that you would need a Net Savings of, at least INR 5,000/- to achieve this goal. In order to track this goal on a day to day basis, you could divide the amount i.e.) INR 5000/- by the number of days in the month, say 30 days and this would give you the amount (INR 166.67) you would need to save each day to achieve this goal. Maintaining a daily budget would bolster the chances of you achieving your financial goal by helping you inculcate the habit of analyzing your budget on a daily basis and teach you the discipline you need to crush your goals.
Please do download the required formats / app that helps you keep track of your budget on a daily, weekly and monthly basis. Initially you will feel a bit lazy about doing it, you may even stop for a couple of days due to various reasons. But please restart it and keep trying to achieve it. I can promise you that once you crush your first financial goal, you will definitely get a strong sense of achievement and you will try to create bigger and more challenging goals. If you keep at it with patience, persistence and resilience, within a few months or years, you will be in a much more disciplined and financially stronger position.
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Financial planning should be done in consultation with a registered Chartered Accountant (CA) or a Certified Financial Planner (CFP). The views in this blog are the author's personal views alone.