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Budget Planning: Stop living from paycheck to paycheck!

Created on 30 Mar 2023

Wraps up in 14 Min

Read by 2.6k people

Updated on 13 May 2023

Are you tired of constantly wondering where your money went at the end of the month? Do you find yourself unable to do things you desire because of unexpected expenses? If so, you're not alone. Many people struggle with managing their finances and end up living from paycheck to paycheck. But fear not, there is a solution - budgeting.

Budgeting is a classic concept that involves creating a plan for how you will allocate your income to different expenses and savings goals. By creating a budget, you can track your spending, identify areas where you can save money, and prioritise your expenses. This will, in turn, ensure that you can do the things you want to do without breaking the bank. So, say goodbye to wondering, Paise aakhir jaate kaha hai? and hello to a more financially stable future with the help of budgeting.

But first things first, what exactly is a budget? A budget is a financial plan that outlines your income and expenses over a period of time, typically a month. It helps you understand how much money you have coming in and allows you to allocate funds to different categories, such as rent, mortgage, utilities, food, transportation, entertainment, and savings. In short, a budget is a roadmap to financial success.

Benefits of Budgeting

Still thinking about why you should start budgeting? After reading the following benefits of budgeting, you will regret that you didn't do it before and will start budgeting right now!

1. Supports You in Working Towards Long-Term Goals: All of us plan on buying a car, or a house etc., and to be able to buy these require a huge amount of savings. Thus planning and budgeting wisely gets us closer to our long-term goals.

2. Can Stop You from Splurging: Do you want to buy those stylish, beautiful Jordans or amazing dresses from the summer collection at Zara? Me too! But when I made my budget, I realised I can't afford these for the time being. This is what budgeting does. It makes you prioritise important stuff over your whims, thus saving you from overspending.

3. Promotes Retirement Saving: Squandering your salary today and not planning for retirement will land you in a situation where you will not be able to continue the lifestyle you have today. Taking inflation and expensive healthcare into account, we must prepare a retirement fund to ensure a smooth and trouble-free autumn of life.

4. Aids throughout Emergency Situations: Suppose, God forbid, that suddenly your close family member was diagnosed with cancer, and because you didn't create an emergency fund, it would be difficult for not just you but also your family. That's why it is always recommended that one create an emergency fund for at least three months in cases of sudden job loss or health crises.

5. Predict Purchasing Behaviour: Ever heard of mindless scrolling? Similarly, there is mindless spending, where you keep buying things that you do not need and end up wasting money. And, when you wonder aakhir paise jaate kaha hai this is how you find an answer. By budgeting, you realise that you wasted ₹XYZ on buying the gaming console you didn't even use. Thus Budgeting helps you in finding and improving your financial habits.

6. Avoid Debt: The ability to avoid debt is one of the main advantages of budgeting. Whether it's your credit card bill or instalments for a home loan, debt can be a major source of anxiety and can take years to repay. You can avoid overspending and debt buildup by creating and sticking to a budget. This will allow you to save money in the long run and reach your financial objectives quicker.

Types of Personal Budgets

Now that we've covered the basics of budgets and their benefits let's look at the various types because everyone has different needs and goals.

1. The Zero-Based Budget: A zero-based budget is one of the most popular kinds of personal budget because it requires you to allocate all of your income to different expense categories. In other words, you have to account for every penny that you earn and spend. This type of budget is great for people who want to keep hisaab of their spending in detail and ensure that they're not overspending in any particular category. For instance, if your monthly income is ₹30,000, you assign that amount to various categories and make adjustments as needed.

2. The Envelope System: The envelope system is a type of personal budget that involves using physical envelopes to manage your money. You assign a certain amount of cash to each lifafa, which represents a specific expense category. For example, you might have an envelope for groceries, one for entertainment, and another for transportation. Once the cash in an envelope is gone, you can't spend any more money in that category until the next month. This type of budget is perfect for people who prefer to use cash instead of credit cards and want to avoid overspending.

3. The 50/30/20 Budget: The 50/30/20 budget is a personal budget that divides your income into three categories: needs, wants, and savings. Fifty percent of your income should go towards meeting your needs, which include things like rent, mortgage, utilities, and food. Thirty percent of your income should go towards your wants, such as entertainment and travel. The remaining 20 percent of your income should be saved or invested for the future. Bas! This type of budget is great for people who want a simple and straightforward way to manage their money.

4. The Pay Yourself First Budget: The "pay yourself first" budget is a type of personal budget that prioritises saving before spending. You put aside a certain amount of money from each paycheck to go towards your savings or investment accounts before paying any bills. This type of budget is great for people who want to make sure they're saving enough money for their long-term goals.

5. The 80/20 Budget: The 80/20 budget is living on 80 percent of your income and using the remaining 20 percent to pay off debt, save, or invest. It is kinda on the lines of a 50-30-20 budget, with the difference being that involves this type of budget is great for people who want to build up their savings quickly.

6. The Spending Cap Budget: The spending cap budget is a type of personal budget that involves setting a maximum amount of money aside to spend in a particular category each month. For example, you might set a spending cap of $200 per month on dining out. Once you hit that limit, you can't spend any more money in that category until the next month. This type of budget is great for people who want to control their spending without tracking every penny.

7. The Traditional Budget: The traditional budget is a kind of budget that involves creating a detailed plan for your income and expenses each month. You start by estimating your income and then list out all of your expenses, including rent/mortgage, utilities, food, entertainment, transportation, and more. You then allocate a specific amount of money to each category based on your priorities and financial goals. This type of budget is great for people who want a comprehensive and detailed view of their finances.

8. Sub-Savings Accounts Budget: The sub-savings accounts budget involves creating separate savings accounts for specific financial goals. For example, you might have one savings account for a down payment on a house, another for a vacation, and a third for emergency expenses. You then allocate a certain amount of money to each account each month to work towards your goals. This type of budget is great for people who want to save for multiple goals at once and keep their savings organised.

9. Anti-Budget Budget: Anti-budget -Sounds a little funny, right? The anti-budget budget is a budget that flips the traditional budgeting model on its head. Instead of tracking every penny you spend and allocating specific amounts of money to different categories, you simply save a set amount of money each month and spend the rest freely. The idea is that by saving first, you're able to enjoy guilt-free spending on all the things you want. This type of budget is great for people who don't want to feel restricted by a traditional budget but still want to prioritise their savings.

In conclusion, there are many types of personal budgets out there to suit different financial situations and goals. There is no such thing as a one-size-fits-all approach to budgeting. From the detailed traditional budget to the more flexible anti-budget budget, there's a budgeting method that can work for everyone. So why not give one (or more!) of these budgets a try and see how they can help you take control of your finances and achieve your goals?

Myths about Budgeting

Budgeting as a concept might seem too good to be true. Which is why there's bound to be some fact and fiction about the idea. Read on to clear the fog around the mystical budget.

1. Budgeting is all Math: You don't have to be Shakuntala Devi (or a math whiz, for that matter) to create a budget. There are plenty of online tools and apps that can help simplify the process for you. In fact, many of these tools will do the math for you! Simply enter your income and expenses, and the tool will assist you in creating a budget that works for you.

2. Young people don't need to start budgeting: It's never too soon to start budgeting. Even if you're just starting your career or don't have a lot of expenses, creating a budget can help you build good financial habits. The earlier you start, the better off you'll be in the long run.

3. Saving money eliminates the need for budgeting: We all want to buy a Mercedes. While it's great that you're already saving money, that won't make you buy that Merc quicker. But creating a budget can help you maximise your savings and reach your financial goals faster. A budget can help you identify areas where you're overspending and redirect that money towards savings or debt repayment. Who knows, maybe you’ll be able to buy a Porsche.

4. Budgeting is an arduous task: Creating a budget doesn't have to take a lot of time. You can start by tracking your expenses for a week or two to get an idea of where your money is going. From there, you can create a simple budget that will help you stay on track. So, it will not take more than an hour or two to make a budget.

5. Budgeting can be planned in the head: While it's great to have a general idea of where your money is going, a budget will help you stay accountable and ensure that you're spending your money wisely. For example, the advent of UPI has revolutionised the way we make payments, making it a seamless and effortless process. In fact, it has become so effortless that sometimes we may not even remember the transactions we made, especially for small purchases like a Zomato order or a cup of coffee. A budget will help you account for these expenses and ensure that you're prepared when they arise.

6. Rich don't need a budget: Even if you have deep pockets, creating a budget can help you make the most of your money. A budget helps you identify areas where you're spending extravagantly and redirect that money towards savings or debt repayment. It can also help you plan for large expenses, such as the Europe trip you dreamt of having.

7. No debt - No budget needed: While it's great that you don't have any debt, creating a budget can help you make the most of your money and plan for the future. It can help you save for retirement, build an emergency fund, or save up for a big purchase.

How To Start Budgeting?

Now that we know what budgeting is, what its benefits are, and the various ways in which we can prepare to budget for ourselves, let's dive into how to start the whole process of budgeting. If you are new to this, then don't worry it's not as complicated as it seems.  

Step 1- Calculate your income: The first step to budgeting is determining all your sources of income - salary, bonuses, and side hustle earnings. Identify them and add them up using a calculator. 

Step 2- Make a list of all the expenses: Now you have to list down all the expenses, whether they are fixed, like rent or mortgage payments, car payments, insurance premiums, and utility bills, or variables like groceries, entertainment, and travel expenses. Classify each expense into fixed and variable. 

Step 3- Determine why you want a budget: Before zeroing in on a specific budget, you have to identify your personalised goals. Maybe you want to pay off that credit card debt, save for a vacation, or build an emergency fund. Whatever your goals are, write them down and prioritise them based on how important they are to you.

Step 4- Decide the type of budget: As we listed above, there are different types of budgets to choose from. Choose the one that fits your financial goals and your financial habits. 

Step 5- Adjust your expenses to stay on budget: Now that you have a budget in place, it's essential to adjust your spending to stay on track. Look for ways to cut on expenses, such as reducing the number of times you eat out or switching to a cheaper internet plan. Make sure to allocate enough money to each category of expenses so that you don't overspend.

Step 6- Implement and review your budget: Now that you have a budget and have adjusted your spending, it's time to put it into action. Implement your budget and track your spending to ensure that you're sticking to it. At the end of each month, review your budget and make adjustments as needed. Maybe, you need to reallocate funds or cut back on certain expenses to help you be on track with your budget.

Now, if you are a rookie, you must be wondering that we explained what budgeting is, what its benefits are, what types of budgets there are, and how to start budgeting, but how to stick to the budget? After all, dil toh baccha hai ji!

How to stick to your budget?

A journey of a thousand miles begins with a single, small step. The journey of your budget can be a bit difficult to stick to, but with these little changes, you can make it work.

1. Plan your meals: Food is one of the major expenses for many individuals. You may want to save money by planning your meals ahead of time. Make a list of the ingredients you'll need for the week's meals, and stick to it when you go grocery shopping. This might help you avoid impulse purchases and buy only what you need.

2. Plan realistically: Have a realistic financial plan when preparing your budget. Don't overestimate your income or underestimate your costs. Consider all of your fixed and variable expenses and set aside a reasonable amount for each. This will assist you in avoiding running out of money before the end of the month or overpaying in one category.

3. Learn to say NO: Saying no to expensive outings or purchases that don't fit into your budget can be tough, but it's necessary to avoid overspending. You can still have fun while being frugal by finding free or low-cost activities to do with friends and family.

4. Maintain a Lower Credit Card Limit: Credit cards can be a useful tool for perks like airport lounge access etc., but they can also lead to overspending if not used wisely. To avoid overspending, stick to a lower credit card limit and only use your credit card for essential purchases. Also, make sure to pay off your credit card balance in full each month to avoid interest charges.

5. Wait Before Buying: When you're tempted to buy something, wait a few days before making the purchase. This can help you determine if it's a need or a want and avoid impulse buying. Waiting also gives you time to research and compare prices to find the best deal.

Family Budget and its Importance

In India, we truly believe in the spirit of "Hum Saath Saath Hai". Family is not just a group of people who share a roof but also are a source of emotional support and a safety net in times of need. So when it comes to family finances, creating and sticking to a budget can help keep everyone on track and ensure that there's enough money to go around. A family budget is a plan that outlines how much money the family has coming in and going out each month. Let's discuss the importance of family budgets, the different types of budgets, and how to start a family budget.

Why is a family budget important?

A family budget is essential for several reasons…

Let's say, as a family, you strongly want to buy a villa, but you also wish to save for your children's education abroad, keep a certain amount of money for your parents' old age, and also want to start saving for your own retirement. In cases like these, family budgeting helps you avoid making the reckless decision of buying a property in Goa. 

Firstly, it helps you stay in control of your finances and avoid overspending. By knowing how much money is coming in and going out, you can plan and prioritize your spending accordingly. 

Secondly, a family budget can help you save money for emergencies like medical emergencies or long-term goals, such as the education of your children or your parents’ retirement. 

Finally, a family budget can significantly reduce financial stress and improve communication and collaboration within the family.

There are three main types of family budgets:
1. Balanced Budget: A balanced budget is when all members’ income equals all members' expenses. This means that the family is not overspending or living beyond its means. It also ensures that you're not accumulating debt or using savings to cover your expenses.
2. Surplus Budget:A surplus budget is when your income exceeds your expenses. This means that you have extra money left over after covering your expenses. A surplus budget can be used to pay off debt, save for emergencies, or invest in long-term goals.
3. Deficit Budget: A deficit budget is when your expenses exceed your income. This means that you're spending more than you're earning and may need to use savings or accumulate debt to cover your expenses. A deficit budget is not sustainable in the long run and can lead to financial stress and hardship.

How to start a family budget?

A family is a combined unit of many persons. Thus budgeting for a family isn't too far from personal budgeting. However, to make the budgeting affair a bit more parivarik or family-friendly, here's a little rundown.

Step 1: Call a family meeting: To begin, gather your family members and ensure that everyone is on board with the financial budget. Describe the benefits of budgeting, such as the ability to save for a family vacation or a new gadget.

Step 2: Track Your Expenses: Step two is to keep track of your expenses. This involves keeping track of every rupee you spend, from groceries to gas to entertainment. There are several budgeting apps available to help you keep track of your spending.

Step 3: Set Your Goals: Now that you know where your funds are being spent, it's time to decide on budgeting targets. This can include saving for an emergency fund, settling debts, or putting money aside for a major purchase. 

Step 4: Create Your Budget: It's time to create your budget using the information you collected in step 2 and the goals you fixed in step 3. In order to do this, a specific sum of money must be set aside for each category of expense, such as housing, travel, meals, and entertainment. Make sure your expenses are prioritised based on your goals.

Step 5: Stick to Your Budget: The final step is to stick to your budget! You can also involve your family in the budgeting process by having regular check-ins and celebrating milestones together.

Now you have all the tools you need to ace the game of budgeting.  

The Bottom Line

So you have Budgeting 101, where you now know to plan prudently, allocate resources judiciously, and achieve your long-term financial goals. That's really nice, isn't it? There are different types of personal budgets to suit various needs and goals, including the zero-based budget, envelope system etc.

Budgeting is easy: no need to be a math expert.  Start anytime, maximize savings, track expenses, and benefit everyone regardless of income or debt. For sticking to the budget you could plan meals, avoid expensive outings, keep a lower credit card limit, and wait a little before buying.

For effective budgeting: calculate income, list expenses, choose a budget type, adjust spending, and review regularly to achieve financial goals. Create financial harmony and reach your goals by making and sticking to a family budget.

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Meet Muskan, the fun-loving ambivert who enjoys singing, dancing, lifting weights, and reading about various topics. She loves soulful ghazals and is into world affairs and geopolitics. To top it off, Muskan comes armed with infectious positivity, a calm demeanour, and listening skills to boot!

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