How to make a budget plan | Personal Finance | How to plan a Budget

Money is a tool not just a piece of paper. I hear people saying that, ‘Money is the root of all evil.’ But it’s completely false. It should be, ‘Having no money is the root of all evil’. Similarly, a proper financial planning is vitally important for each individual. No matter whatever or whoever you are.

The main purpose of a budget plan is to allocate the resources, a proper future planning, coordination, control and financial motivation. A proper budgeting and financial planning is important for decision making, monitoring the back bone (Economy) of the business and the expenditures also.

But the question now arises about, How to make a budget plan? And there is nothing big to do in order to make a budget.

How to make a Budget Plan?

If you are searching for, How to make a budget plan? Then search no more ! I have clear answers for you. I am not going to tell those tactics which are difficult and could not be followed.

The following which I mentioned is well researched and I have been following it since 2017. And the good news is It's Successful and can be followed by you as well.

So, as a lesson based on my experience I want to tell you that - If I am financially successful today then the reason is Budgeting. I have two budgets. 1st for my Home and the 2nd one for my Business.

So, without much ado let's start. There are some important notes which you have to make. So, have a paper and pen with yourself right now.

Disclaimer : It will hardly take 5 - 10 minutes to read this article. So, without wasting your time, take note of all the points and download the Budget Planner sheet (from here). Follow the guidelines which have been provided in this article. It will be easy for you to make a monthly budget. Hence it will save your time also.

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Gather all sources of income

Source of income means total earned in one month. It’s easy for some people to gather all sources of income. On the other hand it is difficult for others.

For example a salaried person can easily calculate all his income. Whereas a business man can not. Because it is difficult for him to have a static income.

But if you are a businessman, then don’t worry. Just calculate your net worth and take an average of it.

The result will be your average monthly income.

If you have investments, savings or any other financial instruments then collect it too.

But keep it aside.

You have to use this money to create your contingency fund. We will discuss it later in this article.

Remove Tax and Debts from it

The total income which you have calculated consists of taxes as well. So, you have to deduct all the taxes.

Now the fund which you have in hand is your real new income. 

Gather all monthly expenses

List down all the expenses you incur over the course of a month.

Your expenses may include the followings :

• Groceries
• Gas Bills
• Electricity Bills
• Clothings
• Water Bills
• Insurances
• Personal Insurances
• Car loans
• School tuition fees
• Medicines
• Gym
• Birthdays

Gather all extra sources of income

One extra point is that you should also gather your extra sources of income if you have any.

For example : you can be a part time freelancer, Blogger, YouTuber, Affiliate Marketer, Network Marketer.

If you don’t have any other source of income then you can skip this point. But I will suggest to you that you should definitely create a new source of income.

If you have cash flow issues because you are paid only once a month, divide that payment by weeks. And keep the cash you spend in remaining weeks in a savings account until you need it.

Gather all Impulse spending

Impulse spending is a disease. And it is very dangerous. People with less self control always go for impulse buying.

There are many disadvantages to impulse buying and spending. It can lead to buying mistakes.

You will always buy things you don't need. If you buy on impulse continuously, you may end up bankrupt.

There are many ways to control impulse spending and buying. First of all create a priority list. It may be a grocery list also. The second tip is don't ever go shopping when you are angry or stressed.

You should use cash instead of a credit card. You should also keep in mind that things which are on sale does not mean that you need to buy it.

Note all static and variable expenses

There are two types of expenses. Static and variable. Static expenses are those expenses which are constant every month. But variable expenses are those expenses that may vary month to month.

Your static expense may consist of electricity bills, water bills, school fees, car loans, investments, insurances etc.

Your variable expenses may consist of Groceries, Gasoline, entertainment, outings, birthday parties etc.

This list should be made with immense care because these are some critical expenses.

Demand of discipline is very important at this step.

Make possible daily or weekly expenses

One extra point will be to create a daily or a weekly expense. This will help you to track your expenses for some months.

By tracking these expenses you will come to know about the exact value of your variable and static expense.

This may include the cost of your coffee or tea. (daily)

Tips : If you work on commision, be aggressive in order to save that amount.

Create Contingency fund

A contingency fund is the reserve money kept aside to cover possible unforeseen future expenses.

It is very important to create a contingency in today's era. As we are already seeing the recession of 2020 due to the virus, it is important to have a contingency fund to tackle it.

Creating a contingency fund is the first step in order to create yourself recession proof.

Related : How to survive a recession.

A contingency fund should be kept aside in a different savings account. Yes, in a savings account. Because if you need it (Really urgent) then you can use that money.

Review monthly

Once you have set up your budget it's very important that you monitor and record your expenses in each category, if I say then ideally every day of the month.

Having an estimate of what you have spent in each category throughout the month will keep you away from overspending and help you identify unnecessary expenses or problematic spending patterns.

Try to save 5 - 6% for investment

Investment is the skill which has made many riches. Rich people never spend their money, rather they invest their money.

Related : Why we should invest money.

The one who masters the skill of investing wins everything.

Everything in life is an investment. Studying in an elementary school is also an investment. Learning ethiques is also an investment. Making relationships with other people is also an investment.

Similarly investing in stocks, bonds, real estates etc is also a good habit.

It will not only benefit you but it will also secure the future of your upcoming generations. 

Bonus tip

Pick up all other financial skills that life has taught you or whatever you might have learnt about money in your schools. There is no harm in using those knowledge.

Or if you want to save more each month, cut the cord, choose a less expensive brand.

Bonus Tip : Small investments can add up a lot of money. So don’t overlook the little stuff. You might be surprised at how much extra money you can accumulate by making one minor adjustment at a time.

Conclusion

Therefore we can infer that making a budget plan ensures and secures your financial status. It also prepares you for emergency situations. (Like for 2020 crises.)

It will also identify your bad habits which you can cure later.

I hope I must have helped you to make a budget plan. Please download the budget planner sheet and follow it with discipline. And, do share it with your family or friends, it may help them too.

Thank You
God Bless You.