Make a Personal Budget in 6 Steps—” Start small but start early”

If money management is the first step towards wealth creation, then creating a personal budget  is the first step towards money management. So, if you are worried about your personal finance  and hardly have a clue what to do about it, then this is exactly how you start.  

Find the objective  

Most people fail to manage their personal finance only because they do not have a clear agenda  set for themselves. Practice of having a clear agenda will help you understand how much you  need to save for each purpose and for how long. More importantly, priorities change from time  to time, hence, change your personal financial plans accordingly.  

 Identify your expenses  

Track your family expenses for two to three months to find out how much is spent on what task  every month. Identify the absolute essential and allot money accordingly. First make sure to  pay for the fixed expenditures like home loan/ rent, car loan, utility bills etc. and then prepare  a budget for the variable expenses like grocery shopping, eating out, movie nights and others.  Make sure that you do not spend more than you have allotted in each of the buckets. Also, if  you feel that you are spending more than you can afford, then make sure to check on the  expenses, especially the variable factors.  

Separate need from wants  

Separating your need from your want is very crucial for personal financial planning. There are  many things that we want, but it has to match with what we can afford. It might seem easy  loans and credit cards have increased our power to buy more but there is always a catch. Refrain  from using credit cards as much as possible. It can completely destroy the health of your  personal finances.  

 Plan ahead  

There are yearly expenses from tax/insurance payment to holidays that can be planned ahead.  If you keep aside a small amount every month targeted towards a particular expense, then at  the end of the year you will be financially prepared for it. Often people end up taking personal  loans for such purposes and keep on paying for it, including the interest rate, for the rest of the  year. Simply, if we can reverse the cycle and plan ahead, then we can save ourselves from some  unnecessary stress and losing money. 

Emergency corpus  

Even before you start saving and investing, it is necessary to build an emergency corpus. This  is a fund that is set aside for emergencies and the rule is you should never touch it unless there  is an emergency. This money can provide financial relief during job loss, illness and accidents.  The size of the fund should be three to six months of monthly expenses that are necessary to  survive. Building an emergency corpus is a crucial aspect of your personal financial planning  and money management.  

 Make sure to save  

There is a simple formula to know how much you can afford to spend (Income – Saving =  Expenses). Fashion your expenses around this formula First, set aside some percent of your  income as your retirement corpus and never use it for any other purpose. Next, set your future  goals, short-term, mid-term and long-term, and base your priorities. Set aside some money as per  your estimate in each of the buckets, and whatever is left, you should plan your personal budget  around it.  

A little financial discipline can make a big difference to the health of your personal finance. Start  small but start early to see your money grow exponentially – this is the best practice among all  the money management rules. 


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