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Creating A Smart Personal Financial Budget – 5 Easy steps for the beginners

You may have had nightmares before while making your personal financial budget. May be you messed it up all! You need to know one thing clearly. Making a personal financial budget is an art. You need to develop that knack slowly and persistently. First of all you need to know as to WHY you are making a budget. Your personal budget gives you an idea as to where the money is coming or will be coming  from (futuristic) and where is it expected to go. This is extremely important if you are keen to maintain a smart lifestyle at any point of time, especially if you are invested big time! Following steps can go a long way in helping you make a smart and a flexible budget.

5 Easy steps for the beginners

1. Your documentation should be perfect. No excuse there!

Collect all the documents related to your expenses and incomes. You may be receiving some income on your investment or you may be contributing to a retirement fund on an S.I.P basis. Collect all the bills, invoices and receipts. Your bank statement is the key document which you can’t afford to miss.

2. Make a miniature cash flow statement

Now, don’t get bogged down by this technical lingo. Cash flow statement is a simple statement which shows a list of all your sources of incomes (actual as well as expected in the forthcoming period) as well as  the list of all the avenues where it will be applied. If your are employed, than you must be receiving a statement denoting your salary income and the taxes deducted thereon. If you are a business owner, then you need to be very careful not to miss any prominent source of income. After that, make a list of all the payments. Typical payments include grocery payment, mortgage installments, insurance, utility bills, entertainment etc. Be sure that you don’t skip any.

3. Follow the ‘marginal costing’ concept.

Again, this lingo can trouble you. But wait. Marginal costing means simply breaking up your expenses as : Fixed expense and Variable expense! Fixed expenses are those which remain relatively same from month to month. Examples being rent, mortgage EMIs, utility bills, payment to maids, newspaper bills etc. Variable expenses are those which vary as per your activity during the month. Examples being Entertainment, outing, grocery etc.

Remember that this classification is important because fixed expenses are not under your control, but variable expenses are very much controllable. You can handle your budget flexibly if you are vigilant about your variable expenses.

4. Estimate the surplus of the deficiency.

This again is simple but extremely important for future adjustments to your budget. If in a particular month, your incomes exceed your expenses, then you have made a surplus which you can save or invest further. If it is other way round, then you are in deficit and you may need a loan or you may need to curb your variable expenses.

This step is extremely important from the ‘decision-making’ point of view.

5. Monthly reassessment of your budget.

Once you have made your budget, don’t assume even for a minute that your job is over. The most critical part begins now. There is a high probability that your budget may go off-track in the days to come. So, periodic review of the same is essential. Moreover, if your actual expenses are more or less than the budgeted ones, then try to find out the reasons for the variation. This analysis can help you to be more proficient while making the budget for the next period.
If you follow the above mentioned steps, you will inculcate tremendous discipline in managing your personal finances. Know that you may not do it perfectly the first time. Nobody does. But as I have mentioned earlier, it’s a subtle process, a delicate art. The more patience you show, better you will be at it.


Posts by SpeakBindas Editorial Team.

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