How to create a budget that works for you

Taking control of finances is important and it needs careful planning. The way you manage your earnings determines whether you will be able to make your money work for you and achieve your financial goals or not.

A disciplined approach towards monthly spending and savings is an essential factor for effective financial management. The first step in this direction is to go for monthly budget planning. Effective budget strategies not only help in managing expenses but also enable you to set aside the required amount for savings as per your financial goals.

When you create a personal budget, you are essentially creating a financial plan to track your expenses and avoid unnecessary outflows. Even a small amount directed towards savings every month could help you build a corpus over the years.

Unfortunately, many of us still do not understand how to budget effectively. A budget is not just a list of your monthly or recurring expenses. A personal budget plan is a roadmap that makes you aware of your real financial standing, helps you curtail your unnecessary expenses and redirect money towards aspects that add value to life.

Here are a few budgeting tips that you can follow to get a realistic plan on how to lead a quality life.

Estimate your income

The first step to creating a budget is to calculate your income. This income should include money inflow from all sources – whether it is salary, business, rent or any form of regular income-yielding investment. Also, make sure to adjust your tax outgo and other deductions, like for pension or insurance plans, to get an estimate of your real take-home pay. Once you have that figure, it will give you an idea of the money that’s actually available for you to budget.

Calculate your expenses

The next step in effective budgeting is calculating your total expenses. Expenses can be of two kinds—fixed and variable. Fixed expenses mostly include your essential payments like rent, mortgage, utility bills, fuel bills, education fees, staff salaries and regular medical expenses. They can’t be tweaked much and have to be factored in fully when creating a personal budget.

Then comes the variable expenses, which may include discretionary spending on travel, leisure, shopping and entertainment, among other things. This portion can be adjusted month after month depending on priorities.

Estimate your savings and set realistic goals

Savings are income minus expenditure. Once you have made a note of your income and expenses, you can easily get an idea of the amount of money you can save and invest to further multiply your wealth. Money can be invested in mutual funds, stocks, fixed deposits, provident funds, or other investment vehicles depending on the nature of your financial goals.

However, in case your expenses are greater than your income and you are expecting a deficit, you need to fix it as soon as possible to avoid a debt crisis. Either reduce your expenses by tweaking your lifestyle or increase your income by exploring another source of income to keep your budget in balance.

Keep adjusting your personal budget

Once you have devised a personal budget by laying down your income, expenditure and savings, stick to the plan and make sure you follow it month after month. However, it is also important to keep adjusting your budget in case there is any major new income or expense component. In case of major changes, adjust your budget so that your spending doesn't go out of hand and your savings plan stays on track.

To conclude, staying disciplined and consistent towards your budgeting plan will help you manage finances effectively and also empower you to meet your short-term and long-term targets. So, create a personal budget today and make your money work for you.