Here are six tips to make your own household budget

Every year the finance minister gives a budget speech, where he talks about revenues and taxes - from where he collects money and where it will be spent - in his bid to run the country and achieve sustainable growth. Just like a country, every household too needs a budget, to ensure a good life.

Pegging your household budgeting activity to the finance minister’s budget is a good idea. Especially, for those who do not have a financial discipline. This way, at least once in a year, you will be able to get some method to your money madness. Here’s a quick six-step plan to make your household budget.

[caption id=“attachment_645287” align=“alignleft” width=“380”] The idea here is to track where your money is going. Moneycontrol.com[/caption]

(B)egin with income: The first step is to begin with knowing your current financial position. This is not only your own monthly income, but also your spouse’s income any other source, rent from another house property, bonuses, interest on FDs and capital gains on investments. In short, get a good idea of the entire monthly income of your household.

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(U)nderstand your spending pattern: While the first step is fairly easy, this is undoubtedly the most difficult step. Most people falter at this step simply because there is a huge gap between what you think you spend and what you actually spend. You’d be surprised to know that the gap is much more than you could have ever imagined. The idea here is to track where your money is going. And while it’s theoretically possible to track every penny, it’s practically impossible. But with the help of budgeting apps easily downloadable on smart phones, there day, it’s possible to track every rupee you spend. You will need to track your spending for a month or two, to get the real picture of your spending pattern. Of course, this is easier said than done, but if you are serious about your budgeting activity, this is a must.

Alternately, if you are not disciplined or motivated about tracking every buck you spent, there is another way to get a ballpark figure. Simply divide your expenses into two parts, first the fixed expenses and second the variable expenses. No prizes for guessing that fixed expenses are monthly rent, EMIs on various loans and school and tuition fees for you children, and the like.

Expenses which fall under the variable category can be divided into two parts - the compulsory variable expenses and voluntary variable expenses. Compulsory variable expenses are those you cannot live without, such as groceries, electricity bill, mobile bills and other utilities in general. As far as voluntary variable expenses go these are weekend movies at multiplex, dinners at fancy restaurants etc.

(D)ata analysis: The next step is to look into the data you’ve gathered and analyse it. Here you will see where all you can trim expenses. The order of hierarchy to trim expenses would be category based. So, cut a few expenses in the voluntary variable expenses, which means instead of watching three movies at a multiplex a month, go for one movie a month. Instead of going to Starbucks every week go just twice a month. Once you’ve managed to get a control on your expenses in one category you can move to another category. Likewise, cut down small expenses for all categories little by little. Be creative in cutting expenses. We aren’t telling you to be cheap, but be wise. Using technology is a good idea. So instead of making long calls may be you could move to a package SMS plan or use Whatsapp for non-important communications.

(G)ive every rupee a plan: Once you’ve started saving under various categories, ensure the money you save has a plan. For this, set aside an emergency fund which can take care of your three months’ expenses. Then start paying off little by little of your most expensive debt or debt where you pay the highest interest rate. Next, repay as early as possible those loans that do not give you a tax benefit, like a car loan or a personal loan, and like.

(E)valuate and adapt: You will have to keep evaluating your progress frequently. If you slip up, don’t give up, simply start again. If you get a bonus, ensure you prepay loans, also even as you do all this earmark at least 10 percent of your income as savings. And as you get better at trimming expenses, you should move the extra funds saved into investing.

(T)reat: Budgeting is not about living a cheap life. It’s about being wise with your money. After completion of each step, you could treat yourself with a small non-monetary reward. That way, you will have enough motivation to continue with your budget. Remember, just like running a nation, running a household needs two things in place - expenditure management, and sustainable growth.