PERSONAL FINANCE
5 Budgeting Secrets That Could Change Your Life
Take charge of your personal finance
I started budgeting after marriage. My husband and I realised it was the only way to save money and invest in the future. I took up the challenge partly because I felt my finance background would help.
I created a budget sheet in Google Sheets. On the sheet, I listed down our incomes, expenses, money left after all the expenses, etc.
Both my husband and I decided to stick with the budget for the following month. But, things didn’t go as planned and it took a few more months to understand our mistakes and rectify them.
Here are 5 mistakes we did in our budgeting journey. Make sure to go through them so that you do not make the same mistakes.
1. Not keeping track of ALL your income and expenses
There are some things you are sure of — monthly salary, rent, EMIs, etc. Then there are some things that fall in a range — electricity bill, fuel bill, internet charges, etc.
Till now you are fine. But there are other expenses that occur which we do not pay attention to.
These can be smaller expenses like groceries, food deliveries, etc.
It can also be the rare expenses like the occasional night outs, etc.
If you do not keep a tab on such small or rare expenses, it can break your budget.
While I made the budget, I had no clue how much we spent on fuel groceries or food deliveries. I made a guess and allocated a certain amount to all small expenses. I was horribly wrong about the amounts and it took a couple of months more for us to get it right.
When you think about it, it is a no-brainer. You should know what you earn and spend. Without that, how can you allocate a certain amount of money to say, monthly fuel expenses, grocery, food deliveries, etc?
Tip 1: Instead of jumping right into building a budget template, keep track of your income and expenses for a couple of months.
This will help you understand:
- where you are overspending
- where you can cut down some expenses
- where you can allocate some more money and
- FINALLY, how much can you save monthly REALISTICALLY?
2. List down every small expense separately
This step is so powerful in tracking your expenses. While I was tracking down my monthly expenses, I used to combine the smaller expenses.
For example, I added food delivery expense under ‘Miscellaneous items.’
At the end of the month, the miscellaneous items expense was higher than our grocery expense. Also, after a couple of days, I would totally forget what were the expenses under ‘Miscellaneous’.
Tip 2: List down every expense separately, even if they are really small.
3. Make your budget REALISTIC
I cannot stress this part more.
It is quite natural to feel superhuman and think that you can save more money the coming month. But, here I am describing my third budgeting mistake shamelessly.
For once, stick to the tracker and make realistic assumptions.
If you track your income and expenses carefully for a couple of months, you will have a clear idea about each item. Take the average of 2 or 3 months.
Suppose your fuel bill goes like:
The average of three months comes to 177. You can budget an amount which is closest, like 180. Do not make the mistake of allocating 150 or less thinking you can save more on fuel next month.
Tip 3: If you underestimate or overestimate your budget, then the whole thing would go for a toss.
4. Review the budget at regular intervals
This is a highly overlooked step in budgeting. We often procrastinate getting back to the budget because WE ARE LAZY and IT IS BORING.
Well as you grow up, one would realize it is the boring things that brings stability to the life.
It is the same with budgeting too. Like an artist who perfects his/her skill, perfecting the budget based on the changes that happen in life is also important.
Suppose you started budgeting at the age of 23 years when you got your first job. At the end of the year, you get the annual raise. It should be reflected in the budget. You should decide what you are going to do with the extra money. Pay off the education loan sooner or increase your monthly shopping allowance.
Tip 4: It is always advised to review your budget at least annually.
5. Not saving or investing for the future
Let me break one misconception about budgeting. People believe budgeting is only about allocating for your expenses. That is only a part of it.
The real aim of budgeting is to save and invest enough money for the future.
Think about it. If someone is doing the budget such that at the end of the month, he/she empties the account. Because the next day, salary would hit the account. What would happen if the salary comes late or worse what if you are fired?
You are screwed if you do not have any savings.
Budgeting is thus allocating your income and expenses such that you can save a portion of your monthly earnings for the future.
Tip 5: Carefully allocate part of your savings for emergencies and invest the rest for a good future.
Are you planning to start your budgeting journey, grab my free BUDGET template here. Free Budgeting Template
Through my articles, I aim to reach the maximum number of readers and make financial literacy possible. If you like similar articles, do check out my other stories related to personal finance.
