How To Do Budget Planning For Personal Financial Goals

Did you know that analysts from Glassdoor recently revealed that 90% of Indians are earning less than INR 25000 per month¹? In fact, another report by The Economic Times shared that around 81% of Indians exhaust their salary before month's end²! Sounds concerning, right? This happens because many of us lack a solid plan for managing our money and finances effectively. 

But why not take this as a wake-up call and start managing your finances better, ensuring you achieve all your personal financial goals? We understand that a major trouble here would be the unavailability of guidance regarding budget planning.

Therefore, this article is going to cover what is a budget, the benefits of budgeting, and tips on how to successfully have a budget plan in detail. 

How To Set Your Financial Goals?

Setting financial goals can be beneficial for long-term success. But first, let’s understand what are financial goals. They are certain financial objectives that you wish to achieve in a given period of time. Some tips that can help you set financial goals are:

• List Goals: You can start by determining your goal, whether it is short-term or long-term. Your short-term financial goals could be something like vacation funds or emergency funds, paying off car loans, etc. Some examples of long-term goals include plans for retirement, saving up for a house, and more.
• Determine Costs: The next step is to estimate the costs. Research well and determine all your financial requirements like food, utilities, rent, etc. You must also consider external factors, like inflation, interest rates, and fluctuations in the market, while setting up goals.
• Set a Timeline: Decide on a proper timeline that will be realistic to achieve your goal. It is advised that you consider all the factors, like income, expenses, inflation, etc., to ensure you set manageable deadlines. The key is to break down your long-term goals into smaller and more manageable milestones.
• Prioritize Goals: Lastly, rank your goals depending on their importance or urgency. Make sure that you prioritize your critical milestones and also consider the financial impact it will have on all your financial goals. 

Why Should You Make A Budget?

Budget planning is just as necessary as planning your financial goals. It is a financial plan that estimates your income and expenses over a period of time. This is not only for individuals; businesses and governments do this too. It helps manage finances more efficiently and avoid overspending. Here are some tips you must keep in mind when planning a budget:

Track your Expenses: Understanding where your expenses lie and where all your money goes each month enables you to keep track of your spending habits and control them. You can do so by identifying necessary expenses like housing, food, etc., as well as discretionary expenses like entertainment or hobbies.

For instance, by tracking your expenses, you can get to know your overall spending is 80%, and 30% of it is unnecessary spends. In such a scenario, you can choose to cut it, ensuring you achieve your financial goals sooner.

Emergency Funds: Having a budget can help you set aside funds for unexpected expenses like emergencies. Some potential short-term emergencies can be car repairs, plumbing, etc. However, certain emergencies, including medical emergencies, can create a huge dent without savings.

For instance, if you set aside 10% of your income as an emergency fund, this amount can come handy during unexpected emergencies.

Debt Management : Managing debt can be helpful with budget control. It not only limits overspending but also encourages you to pay timely debts in controlled amounts. This will also let you identify high-interest debt so you can prioritize more.

For instance, you can make a table of all your debts and arrange them in descending order as per their interest rates. This will help you prioritize the high-interest debts and ensure you become debt-free efficiently.

How To Create A Budget?

With a budget plan, you can manage your finances and keep your spending in control. Here are the steps to create a perfect budget:

Step 1: Determine Your Income And Expenses 

Begin with calculating your monthly income, including your salary, freelance earnings, or other income sources. Then, identify your regular expenses, beginning with rent and utilities to miscellaneous expenses and hobbies. 

Step 2: Set Goals And Categories 

You can set your own goals, be it short-term or long-term. Save up for emergencies or retirement, and stick to your budget. Also, divide your expenses into categories like essentials and non-essentials, prioritizing some and leaving others.

Step 3: Review And Adjust 

Finally, assess your budgets and adjust your income and goals. Having an effective budget plan with realistic goals can help you save and achieve your financial goals more easily. Moreover, you must keep an eye on your regular spending to ensure that you are sticking to your budget.

What Are Some Common Budgeting Mistakes To Avoid?

It is common to make budgeting mistakes, especially as a beginner. This can further lead to financial stress. Some of the common budgeting mistakes are:

Having Unrealistic Goals: Setting goals that are over-ambitious or unachievable can make it difficult to stay on budget. Moreover, not taking your financial limitations and other factors like inflations and market fluctuations into account can put you under financial stress. Therefore, it is essential to ensure you set approachable goals.

Not Tracking Expenses: Without tracking your expenses, you can end up overspending. Moreover, It can also put you into debt or eat up all your savings. On the other hand, monitoring your expenses can help you ensure that you are staying right on your budget. Thus, you should always list your expenses, be they minor or major.

Relying Heavily on Credit: It is common for most to swipe out their credit cards while shopping or eating without giving much thought to it. However, doing so can lead to high-interest debts. This will also damage your credit score. Thus, it would be better to stay within your income range so as to avoid such a debt spiral.

Underestimating Irregular Expenses: Irregular expenses usually accumulate over time, thus disrupting budgets. Costs like insurance, car repairs, etc., can lead to budget imbalances and depletion of funds. So, it would be better if you identify such expenses and keep funds saved for them aside.

Conclusion

For your financial well-being, you should be aware of how to manage your expenses, build your savings, and manage and attain your financial goals. At the same time, you must ensure that you avoid the above mistakes and follow a strict budget plan. Now while budgeting and saving for your goals is one thing, investing is something that can help maximize your existing funds. This is where Grip can be of help.  We offer secured, rated and regulated deals that offer fixed income up to 14%. Check them out today and take a step towards ensuring financial security.

Frequently Asked Questions On Budgeting And Financial Planning 

 Q1. At what age should you start financial planning?

You should start your financial planning as early as you can. Ideally, it should start right at the beginning of your career, once you get your first paycheck. This means that as soon as you start working, you can initiate your financial planning for long-term success.

Q2. What questions should a financial plan answer?

A good financial plan should address components like goals, whether they are short-term or long-term, income, depending on salary, job loss, investments, etc. Expenses like housing, food, credit card loans, investments, risk tolerance, tax planning, and many more should be included in a financial plan.

Q3. How much should I set aside for investments?

It is recommended to set aside 20% of your monthly income for investments. However, depending on your personal financial conditions and goals, obligations, situations, and conditions, you can adjust this amount. 

References

1. Glassdoor, Accessed from https://www.glassdoor.co.in/Community/consulting-india/80-of-indians-are-earning-15k-per-month-i-e-1-8-lpa90-of-indians-are-earning-25k-per-month-i-e-3-lpaand-we-see-people-saying-25-30. 

2. The Economic Times, Accessed from https://economictimes.indiatimes.com/wealth/personal-finance-news/81-people-exhaust-salary-before-month-end-survey/articleshow/87815659.cms?from=mdr 

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