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Budget for tracking monthly expenses
The Government of India or for that matter any country in the world announces the annual budget at the start of every financial year. Can you imagine what would happen if there was no budget planned? Have you ever tried walking on a totally dark road at night without a torch in hand? It would be something similar to that.
A budget is like a guiding beacon for all of the country’s expenditure. It clearly states the different heads under which the nation is planning to spend its corpus for that year. And the amount of money allocated to each category, e.g. defence, infrastructure, railways, energy, and power development, etc. The annual budget helps to keep the Government focused on its spending. It ensures that the money is spent properly on necessary things and not wasted.
Same is the case when it comes to personal finance. We need a budget to keep track of our expenses. Else it is like moving blindly on the financial path.
Benefits of tracking
There are several benefits of creating a budget for tracking expenses as follows:
- Know where you spend your money on
- Know how much exactly you spend on each category
- Analyze to find out where you can cut back on
- Helps to plan for emergencies
- Helps to better save money for investments
- Helps to create a discipline of saving regularly.
Divide budget into 2 parts
Without further ado, let’s get started on how to create a well-planned budget for your personal and household expenses. Most of our expenses fall into either of the below categories:
- Need-based expenses (NBE):
These are mandatory expenses that occur every month. Expenses like paying rent, paying your bills, buying grocery, maid/cook salary, etc. fall into this category. These are expenses which cannot be avoided.
- Want-based expenses (WBE):
These are expenses that are done to satisfy our wants and desires. For example, buying clothes, shoes, new gadgets, flashy smartphones, going out for movies or restaurant, etc. These expenses are required to a certain extent to enjoy our lives. But if overdone it can lead to financial disaster. So, it’s very important to maintain a balance here.
The first step is to list down on a piece of paper all the different areas where you spend your money every month. Take a couple of hours and thoroughly think through all your expenditure categories for the last 3 months. Be as detailed as possible, don’t leave out even the smallest of expenses.
Once you have the list then it’s time to put each item under any one of the above 2 categories. Mandatory expenses should go under NBE and other expenses can go under the WBE category.
Further, divide each of these 2 categories into sub-categories
Now that you have completed the initial step of listing your need-based and want based expenses, it is time to go even deeper. At this stage, you will have to make the expense categories as specific as possible. For example, if you have an expense category as grocery try to think of all the different items that your purchase under this head. It can be vegetables, fruits, cooking items, health drinks, snacks, etc. If you have spent money on movies then think of breaking it up into further sub-categories such as money spent on commuting from home to the movie theatre, money spent on purchasing tickets, movie snacks, etc.
Allocate a set amount to each category
Once you have all the details of the various expense categories, it is time to allocate an amount to each. Be careful while doing this because you have to stick to this amount at all costs. At no point should you exceed or spend more than this set amount. So, take your time to think through the amount that you want to allocate to each category.
A sample personal budget can be as follows,
Overall monthly budget: Rs. 27000
- Need-based expenses: Rs. 22000
- Rent: Rs.7000
- Electricity bill: Rs. 1000
- Food: Rs. 5000
- Breakfast: Rs. 1000
- Lunch: Rs. 2000
- Dinner: Rs. 2000
- Cook Salary: Rs. 2000
- Maid salary: Rs. 1000
- Car fuel expenses: Rs. 2000
- Grocery: Rs. 2000
- Vegetables: Rs. 500
- Fruits: Rs. 500
- Snacks: Rs.500
- Other household items: Rs. 500
- Others: Rs. 2000.
- Want-based expenses: Rs. 5000
- Movies: Rs. 3000
- Tickets: Rs. 1000
- Commute: Rs. 1000
- Snacks: Rs. 1000
- Dining out: Rs. 2000.
- Movies: Rs. 3000
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Don’t exceed the pre-defined amount for each category
Once you have set the amount for each category and prepared the budget, you should ensure that you stick to it at all costs. You should take care not to exceed the amount for any category. That is why it is important to think though carefully before deciding the amount for each category. But once that is done, you must adhere to it at all costs.
Keep some amount as a buffer for unforeseen expenses every month
No matter how well you plan your expenses, still some expenses will come up which you did not anticipate before. These are one-time expenses and do not happen every month. For example, your glasses got damaged and you need to buy a new one. It is your birthday and your friends asked for a treat which you cannot deny J Hence its always wise to keep some additional amount as a buffer for such kind of expenses. I, therefore, added a separate category as “Others” above under need-based expenses.
Track daily expenses without fail
Now that you have created your own monthly budget, it’s time to put it to use. You need to be diligent and ensure that you track your expenses on a daily basis. As soon as you spend money on something, make it a habit to enter it under the appropriate category. You need to inculcate the self-discipline to track your expenses on a daily basis. You should not miss out on logging any expense.
Analyze expenses at the end of each month
It’s not enough to only track expenses. It’s equally important to analyze them as well. At the start of every month, you need to thoroughly scrutinize your expenses for the previous month. Check how you fared with respect to the budget that you had created. Were you able to stay within the budget? If yes then congratulations, you should definitely reward yourself to motivate you to continue this habit.
And even if you did not then it’s still fine. Just check the sub-categories where you exceeded the set amounts. And make a promise to yourself to stay within the threshold amounts for these categories for the upcoming month. Slowly and gradually you will improve and become better at it.