6 steps to get your home budget plan right
When we first set up a home we just did not know where all the money went! At the end of the month, we would stare into an empty bank account.
The dreaded SMS from the bank, saying account balance in just a few thousands, would alarm us and we would wait anxiously for the next month’s salary to be credited. Then would begin another month and by the 25th, we would be back at square one.
If this happens with you too, don’t worry, neither you or I am alone in this. This fear of an empty bank account is something we all have to face before we can get down to some serious adulting. This scenario is what you need to understand the importance of a home budget.
To regain control of our spending – we were really not spendthrift, just impulsive – you need to plan and this is exactly what we did. Planned and got ourselves back on track. Here’s how we got into the habit of planning our monthly budget. These are pointers work well for a personal budget if you are single and plan a home budget with your partner too. We also have a template for you that can you use straight away.
1. Where is the money going?
The first thing we did was pull out our detective duds and did some forensic accounting. We looked at our bank statements for the past few months and tried to figure out where the money had gone. Interestingly, a lot of money was being spent in the supermarket – on impulse buying. Small things that we did not really need, but just picked up on impulse. Like when we went to buy a gift for a friend and ended up buying an aquarium for ourselves! (it’s true).
So basically, the first thing you have to do is calculate how much you are spending every month. Now the thing to keep in mind is that one month you will have an insurance premium to pay, another month it may be your parents’ anniversary or you may just have to foot the bill for unexpected car repairs.
To factor these ups and downs, you need to average your spending over a longer period that one or two months – say six months. Now that you have the average spending, add another 10 to 15 per cent to this amount to take care of any other major, unexpected spending. This is what you start your budget planning.
2. How much money is coming into your life?
The next question to ask yourself is how much money is coming in? This is your income before taxes. Figure out the income from all sources. The first and obvious source of income is your salary – this is a fixed amount. Next look at any other earnings you may have – interest from savings and investments; rental income; gift cheques from family and friends or maybe a bonus.
The aim of planning your budget is to ensure that your expenses are less than your income(yes, I know you have heard that before). Your goal is to have a zero-based budget. This means that at the end of the month, your balance should be zero. This does not mean that you can spend all that you are earning and turn your bank account to zero. It means that when you are planning your budget, you are also accounting for savings and investments and thus using up all your income and ending up with a zero.
3. It’s a goal!
a)One question you have to ask yourself is what are you working for?
b) What is the need to earn money?
c) What do you want to do with your money?
d)Do you want to just spend it on rent and groceries and buying new clothes?
e)Or do you want to use your money for travel, to fund your own higher education, to have a well-taken-care-of retirement?
You need goals. Figure out your life goals and calculate the money you need to achieve them and then set your financial goals. Before you start planning your spending, plan your investments keeping your goals in mind.
4. Account for it!
Keep strict accounts. Buy a new book. Paste a picture of Lakshmiji on the cover or first page. Cover it in red paper. Tie some roli around it and start. Do what works for you. Keep accounts of every single penny you spend. Do not try to hide anything.
Write down every expense – when you decided to let your home dabba go to waste and spent on eating out; when you bought a new pair of high heels to wear for one party even though you have neutral heels that would easily go with your new dress; or even when you decided to order that expensive coffee over the office vending machine. Only when you see where you are spending will you be able to cut back.
5. Get the template
There are many templates for monthly home budgets you can check out online. Or you can use the one at the end of this piece. But remember, no two people have the same lifestyle, so you will need to tweak the budget template to your specific needs. Based on your lifestyle, you can budget for a certain amount under the various heads of the budget. Maintain records of how much you actually spent under the various heads to see if you are going over or under the budget. The template is a guideline to keep you focussed and aware of where the money is going. It will help you balance expenses – if you are going over budget on what you have accounted for groceries, cut back on eating out to balance it.
A snapshot of a home budget template
6. Live it up
After all the budgeting and planning, if a particular month sees you overspending, don’t give yourself too much grief. It’s all right to let go once in a while. Try not to make it a habit though. Prioritise your spending and investing in a manner that you manage to live it up but within your means!