Personal Finance: How To Set Up A Monthly Budget?
The most effective way to manage personal finances and start financial planning is to set up a monthly budget. Whether you are a student or a working professional, creating and maintaining a monthly budget will help you manage finances and start early with savings and investments. A successful financial planning depends on how early you start creating a budget.
Step 1: Monitor Your Personal Finances
First step towards setting up a family budget every month is to start monitoring your personal or family expenses. Give this at least one to two months. Collect all the grocery bills, bank statements, mortgage/personal loan EMIs, fuel receipts, water/electricity bills, Internet/digital cable bills, and other family and personal expenses. Write down the details on a notebook. This will help you figure out how and where you are spending money.
Step 2: Calculate Monthly Family Income
While calculating your monthly income, always remember to combine income from all sources, except seasonal or occasional earnings. You can keep occasional family earnings for spending on miscellaneous expenses.
Step 3: Calculate Monthly Expenses
Here you will need the notebook where you wrote down the details regarding your personal or family expenses. Now, create a list of expected expenses for upcoming month.
Step 4: Make A Total Of Monthly Income And Expenses
If the grand total of your monthly income and expenses shows more income than expenses, then it is a positive sign for increased family savings, emergency money, and investments as you have extra money in hand every month. If the combined total shows more expenses than income, then you need to make adjustments in your monthly budget to make way for emergency cash, savings, and investments.
Step 5: Review Your Budget Monthly
Start reviewing your budget every month. This will help you in making smart adjustments in specific months where you earn more or spend less.
Step 6: Modify Your Monthly Budget When Necessary
In some months, you will be spending more on items that do not include in your monthly budget such as an unplanned family celebration or a leisure trip. Sometimes, purchase of miscellaneous items by a family member can also ruin your monthly budget. This can include any product or services you never thought of actually buying. If you find yourself in this situation, then you can modify the budget for that month in a way that you do not fall in debt. For example, spending less on buying some grocery items, cutting off dining out items from your budget, etc. Seasonal earnings not included in the monthly budget can also pay for these miscellaneous items. In this way, you will not only able to manage your personal/family budget but will also be able to ensure money for savings and investments and miscellaneous expenses.
Setting up a monthly budget requires very less amount of time. If you think it takes a lot of your time, then you can download free personal finance worksheets, monthly budget software, or financial planning templates from the Internet to take control of your finances.