Instead of living from paycheck to paycheck or with mounting debt, this is an excellent time to make a change. The easiest way to do that is to get started with a personal budget that can help you understand your income and outflow and get back control of your finances. Read on for five ways you can work on creating a realistic and workable personal budget.
1. Get to know your goals and use the right tools
Pausing to understand your motivation for building a budget should be your first and most critical step. Think about what you are trying to accomplish and prioritise your goals. You could be looking to pay off your credit card debt or save enough to invest. Understanding what you have and where you want to go is crucial to charting a plan for prosperity.
Once you have understood where you stand, think about what kinds of tools you will need to keep track of things. It could be as simple as a shareable online sheet, an app by your bank or even an old fashion ledger.
2. Where do you start?
When looking at your income, you can get the most accurate picture of your current monetary status by calculating what you have to spend each month post-tax. This is where step 1 and knowing your inflow will come handy. Start creating your budget around what you can predict will happen with some certainty. To be safe try and avoid including incendiary income that may or may not come your way through the year.
3. Keep track of your expenses
Figuring out what you spend per month on essentials like membership fees, utilities and food is essential. If you have at least three months worth of data, it’s easier to calculate your average for the year and go from there. Remember to include big-ticket items as well as smaller monthly expenses like travel expenses, manicures and others that should go into building your perfect budget.
4. Find simple ways to save and secure your future
In an ideal situation, any budget you create should also make room for savings; however small that might be. Another innovative way is to decide on an amount you can afford to pay monthly, quarterly, half-yearly or yearly or even as a lump sum and invest in a versatile life insurance product like HDFC Life Click2Wealth Policy*. This is an exciting offering which can offer significant returns for investors, has lower charges than many mutual funds and is a great way to grow your money, get tax savings and the protection of a life insurance cover.
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5. Schedule periodic reviews to stay on track.
Doing your research on all the ways you can cut down and save is necessary. So is making some room for unexpected expenditures. Yet perhaps the most critical step of all is the one you take after you have built your budget. At least once per quarter, review your expenditures and your budget and cut yourself some slack if the first few quarters are less than perfect. Learn to take an objective look at your accounts and fix areas that aren’t working.
Finally, if you’ve been putting off getting started, we say don’t wait. Now is the best time to give your finances a real reboot and get a headstart on a more stable, secure future. Good luck!
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