What is a budget?
A dictionary definition of Budget is ‘an estimate of income and expenditure for a set period of time’. It’s brilliantly defined in just 12 words. Let us get a little specific and understand what a household budget is. If you understand it correctly, it’s going to change your life.
A Household budget is an estimate of your income and expenditure required for running your house for a set period of time (month). There are three interesting things you need to know about the household budget.
- Household Budget is proved to be the most practical way of getting control of you financials
- Household Budget is the first step of your wealth building process.
- Everybody who you think is rich has definitely made a budget.
Household budgets work best when they are made monthly as your salary comes monthly and even the majority of your bills are monthly.
Why should you make a budget?
Short answer – it leads you to better savings / bachat which helps you to build wealth.
Once you make a budget, you get an idea where you financially stand today. Once you know where you are standing today, you can plan on how much time it will take to go where you want to go.
There are 5 main benefits of making a budget.
- Makes you aware of your money and where you are spending.
- Helps you to control unnecessary spending and make use of money for better purposes.
- Tells you about your ability to save every month and encourages you to save more.
- Takes you closer to financial goals you have. (Buying house, buying car, kid’s education…)
- It makes you prepare for emergencies.
You should make a budget if you want any of the above benefits brought to your life.
Budget and financial progress
Let’s fast-forward some events to understand how your financial progress is linked to Budget.
- Today – You start to make a budget completely based on your assumptions
- In a month – You begin to make better judgement on your budget after analyzing actual expenses
- In two months – You now are able to balance your expenses and budgets quite accurately
- In three months – You think of cutting unnecessary expenses and increase savings
- From third month – You start investing your savings. You start building wealth systematically.
- From fourth month onwards – You can see your budget and take bigger financial decisions.
So if you are ready to crunch some numbers today, you are sure to be kick start your financial progress
The Budget process
Let s get to the real thing – how to actually make a budget. In 2 minutes you will understand the whole process. It’s actually quite simple. Broadly its 2 steps.
- Note down Incomes
- Note down expenses
Yes just these two steps and the whole activity is pretty intuitive. Most of our users go on to add more than 10 different items in incomes and expenses to get close to their actual Bachat. This is a very good way to get started and you can go on adding or modifying the same as you remember. Getting started is half the job done.
Why note down incomes?
For people who know how much you get home every month.
Start with your monthly income but do not forget or ignore the smaller ones. Every drop matters and this is where you can actually begin saving better to grow. For Example, You will always know your monthly salary or the Drawings from your Business, But the 1,350 you are making on FDs or the 6,000 your Provident Fund earned last year for you will be easily missed. We have noted 7 types of incomes people have. If you are just starting to earn, you may have just one or two sources of income. But as you get going ahead in life you will start having multiple sources and it’s important to count all of them to make a real budget.
For people who do not earn a fixed monthly income.
Yes we can help you to budget too. It is usually difficult for people earning from a business or profession to make a clear judgement of their monthly incomes. But they have to pay bills again, a lot of which are monthly. So it is important to have a fair judgement and we can help you with that.
For example if you earn Rs.5 Lacs on an annual basis as share of profit from your business. Take this as a starting point. Use the “Yearly” frequency instead of the “Monthly” under Business Income and Set your Annual figure. Now as this as the base, try to add other sources of Income in your budget.
Why note down expenses? And how to do it correctly?
Remembering and noting expenses is where 95% of people get bored. You do not have to worry. We have already done the hard part of listing all possible household expenses. Not just that, we have neatly categorized them into 14 categories. You will be pleasantly surprised to see the possible expenses and would thank us for informing you. Check it out here.
Tip: Always note the higher end of expenses
You have a budget = You know your money.
Once you have created the budget.. you know exactly how much money is coming in and going out. You can see your budget and decide how much money you can spend. Your budget will now guide you to take financial decisions. You will feel all your financial stress going down after making a budget. The Bachat application can do something visually interesting for you. Reports!
Look at the awesome reports we show
This is the real fun part. Your efforts in noting down incomes and expenses get paid here. You can literally see your money coming live in beautiful animated charts. You have to check yourself to believe.