Why do you create a budget? The main reason is to establish a balance between income and expenses. One more reason which is equally important is enabling you to save money. By the help of it you can make your budget less constricting.
Do you know how to calculate the right amount of savings for your budget? Let us look at some steps suggested by India’s First Online Financial Advisory Portal, MoneyMindz.com.
Create a budget
You shall begin by listing your stable monthly income, as well as all expenses. Basically, it’s all about everything from your monthly house payment and it is rather good if you go back a few months. You should include the past three months at a minimum. But even going back six months, or a full year might provide a lot more insight.
You can try the basic idea by conducting realistic assessment of your income and expenses. The main purpose of this step is to create a baseline. It can be termed just as a starting point to build your budget on.
Analyze your spending
Whether you do it manually or using an app, you should summarize your spending patterns. Create expense categories, such as mortgage, car payments, utilities, groceries, and entertainment.
Organizing your spending into categories will accomplish two important goals:
It will let you see exactly where your money goes (which can be surprising!)
It can enable you to make adjustments.
Set a savings goal
You need to set a target amount for savings. For example, you might need to three month’s living expenses in an emergency fund. If you want Rs 3,000 per month to cover your expenses, you’ll require Rs 9,000 in order to fill the fund. That can be termed as your savings goal. You’ll have to create a reasonable plan to reach that goal.
Know when you’re pushing too hard
You might set high goals at the very beginning, with the idea of making up for lost time. This is probably not a good idea. If you haven’t been a saver up to this point, it’ll take time before it comes naturally.
Your best bet is to start with a savings goal that’s doable. For example, if saving 10 percent of your income is fairly easy, go with that number. You can increase it over time, as your earnings increase, and you get better at cutting spending.
Under ideal circumstances, your budget becomes a lifelong commitment. An imperfect one that works is better than a perfect one that forces you to give up early.
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