Learn How to make a budget with this step by step process. I will teach you to make a budget that leads you to attain your financial goal.
Many people need to put a budget. But not everyone will make it. They don’t know how to make it. There are many reasons for creating it. Some people need to make a budget to save money. Some people need to make it to invest money. In this article, we are going to see the step by step process of making a budget plan.
- 1 What is a budget?
- 2 How to make a budget plan?
- 3 Steps to make a budget
- 3.1 Step 1-Track your income
- 3.2 Step 2-Plan before a month starts
- 3.3 Step 3-Calculate the fixed expense
- 3.4 Step 4-Calculate the common monthly expense
- 3.5 Step 5-Calculate the unique spending
- 3.6 Step 6-Calculate the total income and expenses
- 3.7 Step 7-Make changes in the budget
- 3.8 Step 8-Budget for your future goals
- 4 How to track your expenses?
- 5 How to make a budget in excel?
- 6 What is the 50 20 30 budget rule?
- 7 Reasons why you should budget your money?
- 8 Conclusion
What is a budget?
The budget is an approximation of income and expense for a period of time. The budget is made by an individual person, by a company, by a family to run through. Let say you have an education loan. You need to pay room rent, food and you need to save money. If you have a budget plan.
How to make a budget plan?
There are many ways you can plan for your budget. Some of the plans for the budget are given below. Planning is not a matter many people plan to make a budget. But they fail to implement it. Planning does not matter a lot. Implementing is the matter.
Steps to make a budget
Step 1-Track your income
The first step to make a budget is to track your income. You need to calculate your take-home income. If you have income in two or three income stream you can sum up all your income. If you don’t have an extra income check out our blog post “7 Ways to Generate Passive Income“. Most of the time only one income is not sufficient to manage all our expenses.
Step 2-Plan before a month starts
Every month plan before the month starts .planning for the first month is difficult after that you only need to copy-paste and edit the previous month. It’s much important to plan before the month starts. Or else you will spend your money.
Step 3-Calculate the fixed expense
The fixed expense is the expense that is fixed. Some of the example for fixed income is the money you are paying for rent, insurance, a medical expense which are fixed every month. Fixed expenses will never change. YOu can copy it from the previous month.
Step 4-Calculate the common monthly expense
The common monthly expense is the which will be changing each month. some of the examples for monthly expenses are tv bills, gas bills, movies, entertainment, restaurant bill. You can calculate the common monthly expense by comparing the previous month’s bills.
Step 5-Calculate the unique spending
Unique spending is spending comes at a particular month. Some of the examples of Unique spending are a Marriage function, vacation, reunion, etc. You should think about the unique spending before a month and note it down. The unique spending should be pre-planned before a month and note it down on a budget.
Step 6-Calculate the total income and expenses
Add the total income and expense. Subtract the total income with the expense. The total income should be higher than the total expense. If your expense is higher than your total income. You should reduce your expenses or increase your income.
Step 7-Make changes in the budget
Your income and expense should be equal in your budget. You can convert the extra income into savings. If you have debt you should make some changes in other expenses. You should clear your debt and fully concentrate on savings.
Step 8-Budget for your future goals
You will have some future goals. You should plan an expense for that also. Everyone should plan for what you should be after 5 years,10 years, etc. You should always plan for that also. If you want to retire early you should also plan for that. If you want to retire early our previous article will help you “How to retire early: Hate 9-5 job? Prepare for early retirement with these tips”.
How to track your expenses?
Check your account statement
One of the ways to track your expense is by checking your account statement. You should check your previous month bills, credit card, bank statement to track your income.“3 Best Banks India For Ultimate Banking Experience”
Classify your expense
Classify your expense and note it down. You can classify your expenses as entertainment, food and beverages, vehicle, insurance, health, medical expense, etc.
Note down the variable expense and not variable expenses. Variable expense may change on month on month basis .some of the non-variable room rent, insurance, etc. Some of the examples of Variable expenses are food, medical expenses, etc.
Track using budgeting apps
You can also use budgeting apps to track your expenses.There are many budgeting apps.You can use them to track your expenses.Depending on your income and expense it will automatically track your expense.“5 Best Budget Apps for Personal Finance”.
Use Excel sheet
If you are good at excel sheets you can track your expense in excel sheet too. If you don’t have experience in don’t worry it’s easy. I have teach the step by step process below.
How to make a budget in excel?
Many people want to create a budget in excel because some people like to work on an excel sheet. Not all people like to make a budget on an excel sheet. For that some, you can see the step by step process of creating an excel sheet. For your clear understanding I have attached the screenshot below.
Step1-Create expense and income in A
In the above excel sheet you can see that I have created the outgoing. I have added
- Expenses on A1
- Bills on A2
- Entertainment on A7
- Food on A9
- Vehicle on A11
- Miscellaneous on A14
- TOTAL A15
- INCOME on A19
- Balance on A20
You can also add a new outgoing if you want. This is just an example you can modify it.
Step 2-Add categories on B
Now you can see that I have added some categories
- RENT on B2
- ELECTRICITY on B3
- WATER on B4
- GAS on B5
- TAX on B6
- CABLE TV on B7
- BROADCAST on B8
- GROCERIES B9
- VEGETABLES on B10
- PETROL on B11
- INSURANCE B12
- ROAD TAX on B13
- ATM on B14
- SALARY on B17
- DIVIDEND on B18
- BALANCE on B20
Step 3-Add months
In this I have added months .
Step 4-Add values of income and expenses
Here I have added the values for income and expense
Step 5- Sum the values of income and expense
Add the total income. I have used the formula “=sum(C3: C14)”for adding. You can adjust the formula according to the excel sheet.
Add the total expense. I have used the formula “=sum(C17: C18)”for adding. You can adjust the formula according to the excel sheet.
Step 6-Subtract total income with expense
Subtract the total expense. I have used the formula “=C17-C5” for adding. You can adjust the formula according to the excel sheet.
Step 7-Copy paste the values to every month
I make this excel sheet just for an example you can make it according to your wish. If you want that excel sheet template comment your mail id in the comment box. I will send it through the mail.
What is the 50 20 30 budget rule?
50 20 30 budget rule is actually 50% need,30% want, and 20 % savings. Elizabeth Warren wrote this about these rules in her book “The Ultimate Lifetime Money Plan”. We can about this in detail.
50% wants are the bills you should pay. Some of the examples of needs are house rent, vehicle expenses, insurance, food, vegetables, loans etc. You should never include entertainment with this cartography. This expense should not go above 50% of your income. If it goes above 50% you should reduce some expenses from 30% needs. These expenses can be reduced by eating only homely foods, Not staying on high rental apartments,Taking passes for government vehicles, etc.
30% wants are the money that you want to spend. Some of the examples of this category are movies, wifi bill, Gym membership, etc. This expense can be reduced by doing a home workout, watch movies at home. Entertainment comes under this category.
20 % Savings
20% of savings are saving money in the bank account, inverting money on stocks, etc. You should have an emergency fund. You should at least have 6 months of your expenses as an emergency fund. So that you can use that money in an emergency situation or when you lose your job.
Reasons why you should budget your money?
- The main advantage of making a budget is we can save more money for our future. Many people will earn more and spend more. Salary is not a matter if you spend correctly and save more you can change your financial status with a certain period of time.
- we can live stress-free for our entire month. Every month when the salary comes people used to spend more and at the end of the month they don’t have money and they will get stress.
- We know how much we are spending. Most of the time we don’t know how much we are spending if we have a plan for that. we can know how much we are spending.
- If we spend less we can save money in more ways. If we spend money very carefully we can save more money.
- we can clear our debt easily if we have a plan. If you clear your debt you can easily save more money “How to save money in 2020″.
- We can improve our financial status.
- It’s a good habit.
- we can create an emergency fund.
Making a budget is one of the most important things you should do to become financial freedom which leads to a happy life. It will be a little tough to follow this in your first two months. After that it will become a habit. Don’t think that you can create it next month. If you think like that you may not able to create it. Start to create it and have a happy life. All the best.
You may also like our articles
Follow us on Instagram to stay connected future_entrepreneure_world