Today, it is impossible to live without financial stability for everyone. In such a situation, the best strategy is to prepare a budget and stick to it to improve your financial status. If you want to save for a certain purchase, pay off your debts, or just survive till the end of the month, having a proper budget in 2024 can turn into the way to a financially stable life.

In this guide, you will learn how to make a good budget for 2024. Now we will see how all this is done, including the analysis of your current financial status, goal definition, and selection of the proper budgeting strategies.

Understanding the Basics of Budgeting

Do you ever think how it is possible to control your income? This is what budget means! It is a plan in which one can determine how to spend the money.

Okay, let’s explain in simple terms. For instance, you receive income every month. Making a budget means that you have to plan on what to do with this income. Where it is required to spend money and where not to. In this way, you can decide on a rational manner of spending your income.

Benefits of Budget

• Financial Control: Budgeting assists you in monitoring the amount of money that you have spent. You know where your money is going and you will be able to use your income in the right manner.
• Goal Setting: Budgeting enables you to make financial plans and stick to them. Whether it is for traveling, to purchase a house, or to create an emergency fund.
• Reducing Financial Stress: Budgeting enables you to keep track of where your money is going. This makes you less concerned with when your paycheck will be exhausted and how you shall make it to the next paycheck. All in all, budgeting for beginners is in your best interest!

1. Assessing Your Current Financial Situation

When planning to save money, there is usually a need to have a clear idea of ​​your financial status at that particular time. For this, you will have to pay some paperwork.

Collect Financial Statements

First of all, collect your financial documents, such as:

• Bank statement
• Credit card statement
• Bank statement for electricity, a receipt for rent/mortgage payment, insurance policies, etc.
• Pay slip or earnings statement.

These documents will help you acquire all the necessary information concerning your financial position.

Calculate Your Total Income

Now it is time to calculate your total income. This comprises all the income that one receives consistently. For example:

• Salary or wages
• Bonuses and commissions
• Part-time income
• Rental income
• Investments and dividends

Make sure to account for net income (after taxes) to get an accurate picture of what you have to work with.

List All Expenses

Next, write down the list of all your expenditures. These can be divided into three parts:

• Fixed Expenses: These are those expenses that occur periodically or are fixed, for example, house rent, car EMI, insurance premium.
• Variable Expenses: These are the predictable expenses that fluctuate each month; they could be grocery items, electricity bills, or petrol.
• Discretionary Expenses: These are the expenses that are not mandatory and are usually considered discretionary such as entertainment expenses, food expenses, and hobbies.

Thus, splitting your expenses in such a manner will also enable you to know where you are spending your money and on what you can reduce your expenditure.

2. Setting Financial Goals

The next strategy under consideration is very important as it helps to set the financial goals that will help to strengthen your financial position. Check out our guide to how to build an emergency fund. These goals guide you on the path to follow and provide the drive to follow the budget tips. You can divide your goals into three parts according to time:

Short-term Goals

These are the objectives that you would like to have within one year. For example:

• Building an emergency fund
• A small debt to pay
• Saving for a vacation

Medium-term Goals

These are the things that you wish to achieve in the short run, within a year to five years. For example:

• Buying a car
• Amazing money for the purchase of a house
• Funding further education

Long-term Goals

These are the things that you want to accomplish within five years or more. For example:

• Retirement savings
• Paying off a mortgage
• Establishing a large portfolio of invested funds

SMART Goals Framework

You can do this by applying the principles of the SMART framework to your desired goals, making them clearer. SMART is an acronym for Specific, Measured, Achieved, Defined, and Scheduled. For instance, saving money can be a weak goal on its own. Using the SMART framework, you can turn it into a stronger goal, such as this means one should be able to save ₹5,000 in the form of an emergency fund within one year.

3. Choosing a Budgeting Method

Everybody has his or her routines and requirements, and therefore the way to create a budget should also be unique. But don’t worry, today we have brought some popular budgeting methods for you, from which you can choose the most suitable for you:

Zero-Based Budgeting

In this method, you associate some work with every rupee of your earnings. By the end of the month, there should not be even a single rupee left in your pocket. Where each rupee of the money will be spent is planned. This method is very helpful in managing the expenses but in this, one has to maintain the record for every major and minor expense involved which takes some time.

50/30/20 Rule

This rule is an easy way to save money. In this, 50% goes to basic needs (house, rent, electricity bill, etc. ), 30% goes to wants (shopping, traveling, etc. ), and 20% goes to savings/debt payments. This method is highly recommended for newcomers because it is simple and easy to follow.

Envelope System

In this strategy, you put your money in different categories/Envelopes. Every envelope contains money for a particular kind of expense like ration money, travel money, entertainment money, etc. Once the money is exhausted that is kept in the envelope you cannot spend on that particular thing for the rest of the month. This method is most effective in minimizing unnecessary expenditures. However, most of the transactions have been done online today, so this method can be a little inconvenient.

Pay-Yourself-First

In this method, you decide on a portion of your income that goes to savings or investment and the rest goes to spending. This method is very effective in nurturing the culture of saving and can prove very useful when it comes to saving for the future. However, mastering the art of spending only that remaining amount sometimes poses a great challenge, it demands discipline.

4. Creating Your Budget

Now that you know your financial position, your objectives, and your method of choice, let’s proceed to writing the actual budget. Here’s a step-by-step guide:

Budgeting Tools and Apps

This is why there are many tools and apps you can use to create and manage budgets. Some popular options include:

• Mint
• YNAB (You Need A Budget)
• EveryDollar
• Personal Capital

These tools can help you track your income and expenses and this will enable you to stick to the right budget.

Spreadsheet Templates

If you like more interactivity, you can use spreadsheet templates. There are numerous templates to be found on the internet for free or you can design your own. One of the advantages of using a spreadsheet is that it can be tailored to your personal needs.

Manual Tracking

If one does not like electronic tracking, traditional ways that involve the use of a writing instrument and paper are also viable. This method is slightly more time-consuming but will provide a better insight into your spending patterns.

Step-by-Step Guide to Creating a Budget

1. Estimate Income: First, approximate your total gross monthly income. Please remember to use the net income after taxes.
2. Categorize Expenses: Categorize your expenses as fixed, variable and discretionary.
3. Allocate Funds: Allocate a predetermined sum of money to each category depending on the estimated expenditure and income. Keep your total cost below your total revenue.
4. Review and Adjust: Check your budget often to verify you’re sticking to the budget plan and make necessary changes accordingly.

5. Implementing and Adjusting Your Budget

As it is necessary to make a budget, it is also very important to follow the budget and even modify it if necessary. You will only be able to make your budget successful when you have achieved all of those.

Tracking Your Spending

It can be seen that no matter how fabulous the budget is, it is very crucial to track the expenses regularly. To do this, you need to track your spending and, for this, you can use specific applications, Excel sheets, or even a simple notebook and pencil. Keep track of everything! This will allow you to discover what you spend more on and areas in which you can cut down expenses.

Reviewing Your Budget Regularly

Also, continue to review the program budget as frequently as possible. And to make certain that it is still in line with your financial plan and program. Here’s a suggestion for reviewing:

• Weekly Review: You need to align your expenses to a certain budget to check whether you are earning enough money or not.
• Monthly Review: Take a look at the total amount of money you have planned to spend and determine whether there is a need to make any changes in the prediction depending on your behavior and changes in incoming money or regular outgoings.

Adjusting Your Budget as Needed

Just to remember, your budget can be more or less depending on your needs. If one can afford to take the change then there is no harm in changing it according to the situation. Let’s look at some common instances when you might need to change your budget:

• Unexpected Expenses: Finding that you need to pay for something you were not expecting, just move that expense to your budget’s current available balance. It may therefore be necessary to reduce on other spendings.
• Income Changes: If you start earning more money, then ensure that you change the budget to suit this new income level if the income reduces, the same applies.
• Changing Goals: If your needs and priorities turn towards different goals, it is time to alter your budget and adjust it to the new needs.

6. Dealing with Common Budgeting Challenges

A lot of people know how to prepare a budget, although sticking to it every month may not be very easy. Let us now talk about some challenges that are usually faced while making a budget:

• Irregular Income

The living standards also differ from one individual to another whereby some do not earn a fixed amount in a given month. In such a situation one may feel that creating a budget is very hard indeed. But don’t panic! You can estimate your budget according to your monthly income, which is the amount you receive each month. Also, prepare substantial maintenance capital so that you can live in the months you receive little income.

• Overspending

It is very common that when we have a fixed budget, we end up spending more than intended. If this happens to you too, then look at what you have planned in your budget and try to identify where you are overspending.

Reduce the over expenditures that are not needed in the business. Alternatively, you may choose to use the ‘envelope system’. Here, the informal cash is stored for various purposes using different envelopes. If there is no more money in this envelope, then one should stop buying the thing that the envelope was to cover.

• Emergency Expenses

Emergency expenses can disrupt your budget. Build an emergency fund to cover unexpected costs and adjust your budget as needed to accommodate these expenses.

• Lack of Motivation

Sticking to a budget requires discipline and motivation. Keep your financial goals in mind and celebrate small milestones along the way. Consider finding a budgeting buddy or joining a financial support group for accountability and encouragement.

Conclusion

Well, there you have it, making a budget isn’t as complicated as it is often made out to be! It just needs a bit of organization and a little extra work done. Track your expenses, categorize them, and then decide on a certain amount to be saved.

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In some time, you will find that you are in a position to control your expenses and are on the right track to realizing your financial plans. What you are waiting for then, start making your budgeting tips today!

FAQs 

1. How often should I review my budget?

Ideally, you should review your budget weekly and conduct a more thorough review monthly.

2. What if my expenses exceed my income?

If your expenses exceed your income, look for areas to cut back and consider finding additional sources of income.

3.  How can I increase my investment?

Keep your financial goals in mind, celebrate small milestones, and seek support from friends, family, or financial communities.

4. What if my financial situation changes?

If your finances change, you should reduce or increase your plans depending on this. Save more money if you get a raise, a new job or a promotion, or reduce your expenditures if you lose your job or get laid off. This message underscores the importance of flexibility when it comes to budget.

5. What if my financial situation changes?

When creating a budget, make sure you include all the expenses you’re likely to incur in a given month particularly should your income vary from month to month. Deposit gains from the months with high sales or traffic against the losses of the slow season. It assists in this way to make you capable of fulfilling your financial commitments repetitively.

3. How much should I be saving?

This can be done by using the common practice of saving at least 20% of one’s earnings. These are things like savings for an unexpected event, savings for retirement, and any other savings that may take many years. This percentage should be adjusted to your financial status and/or your target.