It is a very common phenomenon that many people do create their own budget and spending plans to save on your expenses and to keep a track of the same, but everyone swears to stick to it. Many of the budgets fail as they are taken as a part of our general financial planning but when we take our spending plan a rationale, things change significantly. While preparing a budget helps in analysing the monthly expenditure and the income, a spending plan will give us a clear idea of the areas of expenditure.
Budgeting can be quite challenging at the initial stages as you need to make a note of even the smallest expenses and maintain a track of it. Once you are aware as to what is being paid on the essentials then comes the time to pen down the personal expenditure for the coming or the next month. This is needed as we can cut down on unnecessary expenditure when we actually know where the cash is going and where it is needed the most. For example, you can plan well ahead for a occasion or a festival when we have our budget planned. Once these are taken care, it is also important to set some practical goals. Let us have a step by step look for making a proper budget and a spending plan.
Track the spending: To know how much you are spending on what is very important. Make a note of all the expenses for the day and also make this a daily practise which can be done every day before going to bed. In this way you can know the unwanted expenses.
Categorise the spending: Once a month passes by, look back at your list of spending and try and assign a general category to each and every item. Some things are general like rent, payments for car or mortgage but the others can be grouped into categories like groceries, clothing, medical etc. It is understood that miscellaneous is another category. This will help you to analyse as to where there is a major spending.
Also look out for things which might have been left out and need to be present. There also need to be space for some of the irregular spending like memberships etc.
Making your spending plan: Once you’re good with the categories, do put them on a budget form. Most of such forms are also available online. Total the expense for each category and this can be entered as the planned spending for the coming month. Now add up everything and subtract the same from the next month’s income and see if there is any money left over. If there is any money left over, then that can be allocated to saving or other important expenditure. If you have come short of the income, then it is time to recheck the budget form and it is time to cut the expenditure somewhere.
It is always good to make a new budget every month and also be prepared to make the necessary changes in the spending plan.