As a part our discussion on Financial planning, you are now eligible for create your own budget, right?

You might’ve have heard the word ‘budget’ – from news or someone else. An example is yearly budget of our country or corporate budget. But what is budget? why we need it? what does a budget do? I’m trying to explain about these in this blog.

Budget is a financial planning tool that is an estimation of our income and expenses over a period of time. 

Assume that you have an income of 100 rupees every month and then if you create a budget that explains you how you should spend and save the amount for this amount. For example, you have an monthly expense of 60 rupees that can be your rent, petrol expenses, electricity and other bills, you will create a budget for expense as 60% of your income for monthly expenses. Now, you have 40% of the income is left that is 40 rupees, now you will allocate 20% (20 rupees) for your wants such as going for movie, vacations, or debt repayment etc. The remaining amount you will allocate to your savings such as pension plan, education, marriage, housing plan etc.

If we are creating a budget for the above scenario, the budget rule would be 60-20-20, and you will stick to it, whatever happens. The famous budget rule is 40-30-30, meaning – you will allocate 40% of your income to savings 30% to wants, remaining 30% to savings – you can read more about 40-30-30 rule here. I’m providing a sample illustration of breakups below for the same budget rule

I hope you got an idea about what is a budget, and I strongly recommend to create your own budget that is suitable for your living situations rather than wasting money on unnecessary things and later thinks where all my money gone. Believe me this will give you a clear idea on your outflow of money and will help you to be mature in financial planning.

Most important thing – Create a budget that suits for you, and stick with it. Always!