Mastering Your Money: Tips on How to Prepare a Budget & Manage Your Daily Expense

UPI, credit cards, and “Buy Now, Pay Later" options have simplified the transaction ecosystem and made it accessible for everyone. With the ability to make one-click purchases and receive same-day deliveries, shopping has become incredibly convenient. However, this convenience has a downside, i.e. "overspending". This habit can have far-reaching consequences, leaving little or no savings for future financial goals. Worse still, it can lead one into the vicious cycle of the debt trap, with heavy EMIs becoming a monthly burden on the wallet. Breaking this habit at an early stage or ensuring that one doesn't fall into it is essential. The first step towards this is preparing a budget in advance. It helps you manage your daily expenses by prioritizing necessary, emergency, and leisure expenses. Monitoring your expenses in line with your budget is key to mastering your money and achieving financial stability.

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What is a Budget?

In simple terms, a budget is a plan for one's money. It helps individuals allocate their income towards different expenses and financial obligations. This ensures that they don’t overspend. In other words, a budget is their guide on how to spend their money in a way that aligns with their financial objectives. A typical household budget includes income, expenses, a debt repayment plan, and savings.

Steps to Prepare a Budget:

1. Track income from various sources:

The first step is recording income, by specifying the amount and source against it. For salaried individuals, it is important to record the net pay rather than the gross pay. In the case of freelancers, gig workers, or self-employed individuals with inconsistent monthly income, it is advisable to record the average income of the last six months. Additionally, other sources of income like interest on savings accounts or fixed deposits, retirement pensions, dividends from stocks, and rental income should be considered.

2. List down expenses:

Expenses should be listed down to gain insight into where the money is being spent. These expenses can be categorized into three buckets: essentials, non-essentials, and miscellaneous.

- Essentials: Regular expenses like rent, utility bills, grocery expenses, insurance etc.

- Non-essentials: Leisure or entertainment-related expenses like shopping bills, OTT subscriptions, restaurant bills etc.

- Miscellaneous: Gifts, taxes, charity & donation

3. Prioritize Expenses:

This is one of the most important steps when individuals prepare a budget plan. After listing expenses, it is crucial to prioritize them based on needs and wants. Determining what is essential and what can be lived without is important to manage your daily expenses. For example, if an individual has three OTT subscriptions but only one is actively used, canceling the others can lead to cost savings.

4. Make a note of loans & EMIs:

A critical step in preparing a budget is dealing with loans and EMIs. Understanding the impact of EMIs on monthly budgets and long-term financial goals is necessary. If there are multiple loans, it is advisable to prioritize paying off high-interest debts first and develop a strategy to become debt-free.

5. Optimize Savings and Set Financial Goals:

After deducting the total expenses from one’s income, the remaining amount represents one’s net savings. It is important to make an effort to maximize savings consistently. Also, allocate these savings towards financial goals, investments, or emergency funds. It helps individuals secure their financial future by creating a safety net for any unforeseen circumstances.

6. Monitor and Review Budget Periodically:

After preparing a budget plan, one needs to review and monitor it regularly. Monthly or quarterly reviews allow for necessary adjustments and help stay on track with financial goals. The periodical review ensures that individuals are aware of any changes in their income or expenses pattern and allows them to align the same with their financial goals.

Managing Your Daily Expenses:

Once the budget is prepared, the next step is to master your money by managing your daily expenses. These tips will help in effectively managing daily expenses:

- Monitor Spending: Keep an eye on the daily spending to make sure one sticks to the budget plan. Using a budgeting app or a spreadsheet can help one follow the same.

- Avoid Impulsive Spending: Resist the temptation of attractive deals or so-called sales that may lead to making an impulsive purchase. Before making a purchase, individuals should ask themselves if the purchase is necessary or if they can manage without it.

- Use Cash: A study shows that people using plastic money like cards or UPI are more likely to overspend. Opt for cash payments to manage your daily expenses and curb the overspending habit.

- Automate Savings: Setting up automated transfers from the savings account to different investment accounts, such as recurring deposits, mutual fund SIPs, PPF, and retirement accounts, ensures that a predetermined amount of income is saved automatically before having the chance to spend it.

Budget and Persist: Key to Mastering Your Money

Sticking to the budget is as crucial as preparing it. By following a budget plan, individuals can achieve financial freedom, avoid the debt trap, and have peace of mind knowing that their money is working for them. However, it requires discipline and consistency to prudently manage money. There are several approaches to budget management that one can consider. One option is to write down the expenses in a diary or create a spreadsheet. Another option is to utilize digital tools that can assist in tracking daily expenses and staying within the budget. One such tool is Finobuddy, which offers valuable insights into one’s spending habits. Download Finobuddy today and embark on a journey towards financial freedom.

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