Planning a budget appears to be the boring grown up thing to do once you start getting your own income that would restrict you from buying everything on your list of desires. However, it is your ticket to financial happiness and your roadmap to achieving personal financial goals.
Not every budget you make will work if you don’t follow some basic rules of budgeting. We have listed a few basic steps of creating a domestic budget that actually works.
- Write down your total take-home monthly income: Creating a budget always starts with knowing your disposable income. Once you have it written down to the last decimal point, you can start with figuring out what you can actually afford.
- Figure out your essential expenses and recurring bills: Always start your spending plan with fixed monthly bills like rent, EMIs, credit card debt, fixed household bills, etc. These are fixed expenses that fall in the category of your needs and can’t be cut down.
- Write down your essential variable expenses: Then comes the bills that are there but the amount varies each month. These include phone bills, utility bills, grocery expenses, traveling, medical bills and clothing. These are also needs but those which can be reduced when need be.
- List reasonable amounts for non-essential expenses in domestic budget: Domestic budget that does not allow you to have fun is a budget that is bound to fail. Always leave a reasonable amount of money for your entertainment, hobbies, and other ways you like to have fun with your time and money.
- Figure out the extras: After all this, you might have left out some expenses that you incur but failed to account. Check your current method of expense tracking to identify them. For annual bills, divide the cost by 12 and leave aside that amount every month.
- Figure out your total expenses: Time to know where you really stand financially. Total your expenses and subtract them from your disposable income. If you are money-wise then this amount is not negative and leaves you some amount for savings and investment. If not, then continue reading.
- See how you can optimize your domestic budget: Revisit your anticipated monthly expenditure and see where you can hold back and which expense can you eliminate entirely? Most likely, you’ll find your answer in the non-essential expenses list.
- Stick to your household budget: The best way to stick to a domestic budget is by tracking your spending every day. Just take out 10 mins each day to track and categorize your expenses. You can use BudgetGuru to help you with that. It is a money management app that helps you to map, track and reach your financial goals. At the end of the month, look at your actual spending and compare it to the anticipated one. This information will help you with your next month’s plan.
The sooner you get started, the sooner you’ll be on your way to reaching financial freedom.