Introduction
Budgeting – Whenever we think about personal finance, the very first question that comes to our mind is how to save money. How to manage it properly?
You want to grow your money but how will it happen? This question has many ways because it doesn’t have just one way, there are many ways to make money from money like investing in property, lending money, investing in the stock market, etc.
Along with increasing money, we also want to keep it safe, so now the question comes, what to do first? First of all, you have to learn how to manage money, and how to budget. Budgeting means planning your income and expenses.
Unless you learn to manage your money, you will not be able to sustain it or make more from it. The first question that comes is “Why budgeting is so important”? So let’s talk about this first.
Why Budgeting is so Important?
This will teach you how to spend your money in the right way and at the right place. Creating a budget can help you to avoid overspending, making and fulfilling your long-term future financial goals. We all have seen many methods of budget. Different methods are being practiced in different businesses and homes. We will talk about some of those methods today.
How to do Budgeting
Traditional Way
Your grandparents used to practice this method. They used to divide their expenses and keep them in a piggy bank. They keep a separate piggy bank for each task & a piggy bank for savings. One was for emergencies, which were supposed to be used in sudden incidents or emergencies.
Envelopes
You can decide your Expenses and Savings and keep them in different envelopes. This will help you to remember how much money is kept aside for each task and the possibility of mixed-up money is eliminated. Using this way you will know how much money you are spending and how much money you are saving on a monthly basis. This will help you to avoid the problems of overspending and making a habit of budget.
50/30/20
This is a very famous rule for budgeting. This says you should spend 50% of your income on your needs, 30% on your wants, and 20% on your savings. It becomes easier to decide how to make a budget and also helps you to develop the habit of controlled spending by managing your income properly.
Zero Based Budgeting
This says you do budgeting in a new way every month. In this method, you divide your money according to your needs and wants. You divide your money into short-term and long-term savings or loans. Your income is spent on Expenses, Wants, Savings, and Loan so the income amount becomes zero. It is started in a new way every time, starting from zero.
Self Listing
Self listing option gives you the flexibility to use any tools i.e. Excel Sheet, Phone, or Notebook. You divide all the expenses as per your needs. When you have written down all the expenses, you prioritize them at your convenience. Once you make this as a template you can follow it every month, you just need to put numbers in the sections. It is very easy to maintain.
Renewal Based Budget
Every year you get an increment in your salary, but this increment does not work in your favor because you increase your expenses in advance that are the reason you spend increased income. If you want to avoid this situation and utilize the incremented money, you should try the Renewal Budgeting Option. In this Budgeting Option, every year as your salary increases, you renew your budget plan accordingly especially in the savings & investments section so you can use this money in a better way.
Goal-Based Budgeting
We all have some goals behind any work, if you do a job then our goal is to make life a little comfortable. That is the reason you choose a profession to make money. Similarly, if budgeting is also goal-based then the chances of success will be increased.
For example, suppose you want to buy a car in the next 5 years whose price is Rs 5 lakh. You do a complete calculation of how much money will be required to make the down payment, how much will be the monthly EMI, how much it costs in fuel, and how much it costs in servicing. By doing this you bring it to Monthly Expenses how much money you need for the car every month. Now you have the goal to do budgeting. This Goal-Based Budgeting Option makes your success chances in budgeting very high, you will be inevitable.
Pay Yourself First
This is one of the great options for budgeting. First of all, you have to do budgeting for yourself like any Retirement Plan, Pension Plan, or Insurance Plan. After this, whatever money is left with you, use it for your other work. In this option, you can do both tasks accordingly – for yourself as well as for other things. You just have to decide in advance what % amount you want to use for yourself. Once you have decided on this, you can do budgeting easily.
Conclusion
Budgeting is a systematic approach through which you learn very good habits – like determining your own expenses, avoiding risky and overspending habits, and developing the habit of savings. Today we learned what budgeting is and in what ways we can manage our money and do budgeting.
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