How to Make a Budget – Personal Budgeting Tips for First Timers
I always used to struggle with money management, and I know most of them are struggling too. I thought I m the only one who is having problems, how to manage and invest the money, but next (after one year later), one of my friends asked me how you are guiding the money to make it work you for you.
I started explaining the steps which I took to make budgeting, saving and investing to achieve the multiple streams of income from past one year and producing good results out of it. I heard a sentence from a book called "THE TOTAL MONEY MAKEOVER" which is "IF YOU LIVE LIKE NO ONE ELSE NOW, YOU LIVE LIKE NO ONE ELSE LATER" and good words from Warren Buffett "IF YOU BUY WHICH IS NOT IMPORTANT NOW YOU SHOULD SELL IMPORTANT THINGS LATER".
Myself (Used to think) and most of the people believe that Budgeting is not enjoying life (Spending Money). It is not correct. Budgeting means making your income act like a discipline Gentleman. Giving the money a proper way to spend, invest and making it work for you aside enjoying your life. So let's make a plan and start budgeting asap.
Let's divide the income and expenses which will work for us.
Always mentions Your Income in a big letter which should be visible very clearly. I want to say the very important point is that initially, you need to write down your budget in a book.
SALARY INCOME MONTH ( X ) = 1,24,000/-
Expenses (We have to pay these which are very important for our daily life, this kind of items will be in this section)-
Online Payments (All the Monthly bills which are needed to paid online )-
1. Fuel Bill ( credit card ) = 1500 rs.
2. Mobile Bill ( net banking ) = 399 rs.
3. Gym Bill ( credit card ) = 1600 rs.
4. Home Rent ( net banking ) = 11500 rs.
5. Current Bill ( net banking ) = 800 rs.
6. Gas Bill ( net Banking ) = 400 rs.
7. Internet Bill ( net banking ) = 650 rs.
8. Car EMI ( Net Banking ) = 23000rs.
Cash Payments (All the cash payment expenses will be here )- Should be withdrawn from the ATM to pay them on time.
1. TV Cable = 265 rs.
2. Water Bill = 250 rs.
3. Maid Salary = 1000 rs.
4. Bike Wash = 250 rs.
Expenses are represented as "Y" from now.
Expenses (Y) = 1500 + 399 + 1600 + 11500 + 800 + 400+ 650 + 23000 + 265 + 250 + 1000 + 250
Expenses (Y) = 41614 rs.
Savings and Investments ( All the long term saving, Short term saving, Insurence and Emergency Fund ) Savings and Investments are represented as "Z" from now.
First and most important is the Emergency Fund in savings. We don't know what will come next and what needs to be done to face it, So it's always better to maintain the emergency fund if in case something went wrong we can use these funds.
Emergency Fund (EF) should be calculated in this way.
EF = 6 months * Expenses (Y)
= 6 * 18,614
EF = 1,11,684 rs.
In this case, we are saving the emergency fund for six months period. If you lose your job, then you can use these funds to pay the minimum expenses for 6months. Now, think about how many months you want to save from your income to reach your emergency fund let us take it as 12 months.
Emergency Fund Saving per month (A) = EF / Months
A = 111684 / 12
A = 9307 rs.
Long Term Saving (All the long term saving to buy House, Children Education Saving, Fixed Deposits, Mutual Funds will be in this sections)
Saving (B) --
1. House Downpayment ( using Recursion Deposit) = 26,000 rs.
2. Children Education Saving. (Using Mutual funds ) = 9000 rs.
3. Insurence Payments = 6800 rs.
B = 26000 + 9000 + 6000
B = 41000 rs.
1. Mutual Funds 6000 rs.
2. Stocks - 3000 rs.
3. Crypto Currency 3000 rs.
C = 6000 + 3000 + 3000
C = 12000 rs.
Z = A + B + C
Z = 9307 + 41000 + 12000
Z = 62307 rs.
Variable Expenses are which are not needs but wants like having food in the restaurant, buying clothes, parties, Alcohol, smoking, travels etc.
Variable Expenses = X - Y- Z
= 1,24,000 - 41614 - 62307
= 20,709 rs.
Fix the amount for each wants you are trying to spend for your enjoyments and needs.
You can spend variable Expenses amount on the wants which you are interested in. These will be different from different people. This kind of budget is known as First pay, second, save and then spend (FPSSS)