You must have heard people saying, “This is out of our budget.” What does a budget mean? Is it different from planning? We do have answers to these questions.
A budget represents income and expenses for a specific activity or a collection of activities for a defined period. For example, we can prepare a budget for buying a car, including the price of the car, cost of maintenance, cost of fuel, etc. Another example of a budget could be monthly expenses on rent, school fees, bills, grocery purchases, etc. Budgets are subsets of financial planning. Financial planning is generally a long-term activity, while budgets are relatively short-term. Therefore, though budgets also compare income with expenses, they don’t contribute to far-away financial goals, unlike financial planning.
Steps to make your budget
So, how should you budget? As stated in the previous chapters on expenses, all you need is a sheet of paper and a pencil. You must record your monthly expenses against your incomes and compare them with previous months to arrive at the growth or decrease percentages. That will give you a fair understanding of the trends and help you make amendments wherever necessary. A monthly budget is an excellent standard to maintain. However, you can choose different time intervals too, as per your requirements.
There are various mobile applications like Wallet, Money Manager and Monefy that help you maintain budgets and get different analyses with ease. Apart from them, major banks like the State Bank of India (SBI), HDFC Bank, etc., have features to help with personal budget preparation in their mobile banking apps like YONO, HDFC Bank MobileBanking, etc. Many banks provide Spends Analysis in their monthly bank account statements to their customers. Though these are fantastic indicative tools, you should prepare a comprehensive budget every month and compare it with your financial plan to make the best use of both these tools.
Can you make your own monthly budget? Tell us if you are getting a surplus or deficit.