5 steps to build and maintain the budget
Preparing a budget is the beginning of your financial wellbeing. It helps you to closely monitor your earnings and expenses. If you have made a well thought budget it will help you to achieve your financial goals.
Step 1: List down your financial goals
The first step to create a budget is to identify and write down your goals. These goals must be in quantitative or rupee terms. For example, if you want to buy a house two years down the line, then write down the amount that you need at that time. Or for example, if you need Rs. 20 lakh as down payment, divide it by number of months remaining and you will get the ball park figure you need to save every month for that goal. Repeat the process with other goals too and you will get a monthly figure to save and invest.
Step 2: Calculate your total net income
Before you prepare a budget, you need to take into account the total income that you receive from all the sources. This should be net of any tax or other liability and should include only those funds that are getting credited into your account.
Step 3: Total your monthly expenses
After calculating your total income, the next step is to assess your total expenses. This should include everything such as your grocery, EMIs, other monthly expenses such as phone bills and even the expenses towards not so frequent medical emergencies. To know this figure, you can follow your bank statement showing your bank transactions for six months and try to arrive at average monthly expenses.
Step 4: Create a budget
Most of the heavy lifting has been done by now. You just need to subtract your monthly expenses calculated in step 3 and financial goals listed down in Step 1 from your total income of Step 2. If the total figure arrived is positive, you have created your budget. If the balance is negative, you need to revisit and calculate the entire figures again.
Step 5: Revisit your goals and expenses
Once you have got a negative balance, there are ways to make it positive or you can balance it. Firstly, you can seek the ways of increasing your income to meet the negative balance. Or you can also revisit your expenses and try to reduce it by striking down the expenses you do not need for the time. Lastly, you can extend the time period of your goal. All options or even any one of these options can help you to make a balanced budget.