How to manage your Expenses?
To learn how to manage household expenses?
Like the government has to prepare a budget to run a country, similarly, a common man should also make a budget to manage his life.
Every salaried person faces difficulty in managing expenses and the reason cited for this is the insufficient income. Therefore, it is important for everybody to make a budget.
1. What is a Budget?
A budget is a statement of your income and upcoming expenses. In a way, a budget is advance planning of your expenses. These expenses may be:managing expenses and the reason cited for this is the insufficient income. Therefore, it is important for everybody to make a budget.
i. Planned expenditure
These are fixed expenses that are unavoidable such as educational and ration expenses.
ii. Non-planned expenditure
These are fixed expenses that are unavoidable such as educational and ration expenses.
Budget can be made:
- Daily
- Weekly
- Monthly
- Half-yearly
- Yearly
If you are a salaried person, then you should make a monthly budget and divide it into weeks.
2. Types of Budget
i. Household budget: This budget is made to run a household.
ii. Student budget: If a student makes a budget for his own expenses, it is called student budget.
iii. Corporate budget: This budget is made to run a company or corporate.
iv. Government budget: This is made by the government to run a state or country.
3. Budget - Terminology
i. Deficit
A deficit comes into play when your expenses are more than your income, this situation is called budget deficit.
ii. Surplus
When your income is more than your expenses, this situation is called a budget surplus.
4. Budget - Benefits
Making a budget helps you in:
- Trimming unnecessary expenses
- Planning investments and savings
- Achieving financial goals
- Building an emergency fund
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5. Quality Budget - Elements
You should keep the following things in mind while making your budget:
- Note down expenses accurately
- Make a flexible budget to manage and plan your expenses as per situations
6. How to Make a Budget?
You can make a budget in the following ways:
i. Microsoft Excel
- You can make your budget in Microsoft Excel.
- For this, you can download a personalised budget Excel template from Google at free of cost
ii. Mobile application
On Google Play Store or Apple store, you can find many apps for making a budget.
50|30|20 concept is a very important rule to make a budget. Under this concept:
- 20% of total income should go to savings in the forms of FD or investment instruments such as mutual funds or stocks.
- 50% of total income should be spent on basic necessities
- 30% of total income should be spent on other expenses.
iii. On paper
- You can also use this traditional way to make your budget using pen and paper.
- You should make a comprehensive list and note down all your income and expenses
50|30|20 Concept
50|30|20 concept is a very important rule to make a budget. Under this concept:
- 20% of total income should go to savings in the forms of FD or investment instruments such as mutual funds or stocks.
- 50% of total income should be spent on basic necessities
- 30% of total income should be spent on other expenses.
An example for making a budget:
Mr. A is an employed person whose monthly salary is Rs. 50,000. His salary is credited on the 5th of every month. He lives in a tier 2 city with his wife and two children. Both of his children go to school.
To make a budget, Mr. A has to note down:
i. Total income (cash inflow): This includes Mr. A’s salary (Rs. 50,000) as well as his wife’s income if she is earning.
ii. Total expenses:
Fixed
- Groceries
- School fee
- Fuel
- Gas bill
- Mobile phones expenses
- Water/electricity bill
- Maintenance
- Rent (if Mr. A does not own a house)
Variable
- Dine out
- Outing
Mr. A cannot avoid fixed expenses while he can avoid variable expenses.
Mr. A should follow the 50|30|20 concept and he should:
- Save Rs. 10,000
- Spend Rs. 25,000 on basic necessities
- Spend Rs. 15,000 on other expenses
7. Emergency Fund
While making a budget, the income left after allocating your income to all the expenses is called residual income. You should use the residual income as “an emergency fund.”
You should create an emergency fund worth “6 times of your salary.” This fund can be used to deal with any crisis which may arise in future.
Key Outcomes
- Make a budget to manage your life
- Make a monthly budget and divide it into weeks
- Note down expenses accurately while making a budget
- Follow 50|30|20 concept to make a budget
- Create an emergency fund to deal with any future crisis