Budgeting for Financial Planning

We always speak of Financial Planning and try to make plans. One of the most important parts of Financial Planning is Budgeting. It is one of the things we don’t like to do. It’s only when we start writing down our incomes and expenses and put a budget for our expenses, we would go one step ahead in Financial Planning.

It is very important to be as detailed as possible. Only then you would know where your money is coming from and where it is going. How much time do you think it would take you to write a monthly financial budget? 30 minutes to 1 hour. That’s all. First time you might take a bit longer, but after that it is easy.

How do we go about? First collect all your financial statements, just as you do for the purposes of your income tax. Some of the examples are Bank Statements, salary slips, investment documents, insurance, etc.

Open an excel sheet and make 12 monthly columns.

Next start making a note of all your incomes and the months in which you would got it and how much. Put the gross amount in the incomes write each category of income separately. Put the deductions in the expenses or investments.

Now start noting down all your monthly expenses; Fixed and variable. Fixed expenses are those which would be the same every month. Eg. Rent or maintenance charges, EMI’s, Insurance premiums, etc. Variable would be those which would change on monthly basis. Eg. Groceries, travelling expenses, gifts etc.

Take into account special occasions and budget for them. Eg. Birthdays, holidays, festivals, etc.

Now total up your incomes and expenses and presto you have your budget ready. Our first step is done. You would have some months where expenses would be more than income or the other way around.

If you have excess income, you can plan your investments or keep the money aside for months where expenses would be more. Also in case expenses would be more in a particular month, you could readjust your expenses.

Now review your budget with actual on a monthly basis and adjust your budget accordingly. Do this regularly.