Steps to build your budget
When it comes to income and expenses, though we have predictable salary income, expenses are something that is variable. Further, this leads to unpredictable savings. We as humans have a tendency to forget things. Hence, we record things to take better decisions. Budgeting is also important on the same front. We need to have a budget to take better financial decisions. Although, one might already have a budget in place, many still would not have given it a thought! Therefore, it is crucial for all to have a budget and maintain it to create wealth in the long-term. Here are a few steps that would help you in building budget:
Calculate basic needs
The first step in budget creation is to calculate the amount for things that you would require for your survival. This means that you need to calculate your basic needs. Basic needs include, but is not limited to, rent, food, medical, etc. Calculating your basic needs would help you to understand the bare minimum spending that you need to do.
Think in percentages
Often when we receive a paycheck, we think of spending in terms of amount. Say for instance, you receive a paycheck of Rs 50,000 and you start thinking in terms of amount such as Rs 10,000 as rent, Rs 5,000 for food, Rs 5,000 for fuel, etc. Thinking in terms of amount often lead to a situation of living paycheck to paycheck as we won’t understand where and how much exactly we need to spend. Hence, it is better to think in terms of percentage. For example, out of your 100 per cent of the paycheck amount, 20 per cent is dedicated towards rent, five per cent towards food and ten per cent towards medical, etc. This will help you to get a clear idea as to where and how much to spend exactly.
Grouping of your expenses
Grouping of expenses would help you to have a clear idea as to how much you are spending and in which area. Expenses are of different types and diving deep into each and every expense is a very comprehensive task. Hence, to get a quick glimpse of your expenses, it is better to group them depending upon their nature. Say for instance, you have expenses-such as rent, house maintenance, maid or servant expenses, house repairs, it will all come under household expenses. Likewise, you first need to segregate expenses into different groups.
Calculate savings
This is one of the most important parts of budgeting, as this is the thing which would help you to create wealth in the long-run. More the savings more is the wealth that you can generate. Having said that, it does not mean you should give up on things today. Therefore, it is better to dedicate a certain percentage of your income towards savings, as soon as you receive the paycheck. Ideally, this percentage of income can be anywhere from 10 per cent to 20 per cent. It often helps you to save even before spending which in turn, leads to wealth creation by investing in various investment avenues depending upon your risk appetite.