We all feel great when we get the “salary credited” notification on our phones, and why shouldn’t we? It gives us the freedom to go and eat a fancy dinner, buy good clothes, and more. Has it ever happened to you that you suddenly check your bank balance through a UPI app in the middle of the month, and it turns out to be lower than you expected?
Now, you have to cut corners to somehow survive the month. If yes is the answer, then you have a spending problem, and you need to create a budget. Here is a step-by-step guide to creating a good budget.
Step-by-step process to create a budget-
Step 1: Know your net income
Before even creating a budget, you must know how much money goes into your savings account every month. You must sit down and calculate your net income, which is your total minus the taxes and other aspects like health insurance.
If you focus on your total salary instead of the net salary, you will end up spending more. If you are self-employed, keep track of all the money that comes into your account and repeat it every month.
Step 2: Track your spending
After figuring out your net income, you must know where you are spending the money. To systematically track spending, create different categories for expenses. At the end of the month, you will get a fair idea of how much money you are spending for each category. Identify the areas where you can save money. Also, mark your fixed expenses, like monthly bills, credit card debt, etc. Always make sure to have enough savings to pay these fixed expenses.
Step 3: Set realistic goals
Before you start using the information you’ve tracked, know your short- and long-term financial goals. Short-term goals are usually achieved within three years. It includes things like paying credit card debt, setting up an emergency fund, etc.
Long-term goals include things like keeping savings for retirement and children’s education, which may take several years to achieve. Your goals can change with time, but knowing them will help you stick to the budget.
Step 4: Make Adjustments to Stay on Budget
Now that you know your goals, it is time to make tiny adjustments in your spending habits to stay within the budget. With cutting-edge features like UPI & online banking it is easy to go a little overboard. If you overspend, make a note of it and try not to repeat it next time. Learn from each mistake.
If you have already spent a lot in a month, cut some corners in other things to stay within the budget. Suppose you decided to go on a sudden short trip where you spent a little more, then you must cut down on other things to meet the budget. Instead of taking a cab to the office, take the bus.
Step 5: Keep Updating the Budget
There will be times when you will get a hike in your salary. There can also be times when you might settle for a job that pays less. In both cases, you update your budget. If you get a raise, try increasing the amount that you save, or you can give yourself a little freedom to spend more on other areas. If your income decreases, you will have to cut more corners.
Having a budget is extremely crucial as it helps you pay all your bills on time and also helps you save enough funds for future goals. Follow the above steps to create your budget.