Before we start the blog, I want you to read 2 contradictory statements made by Mr. Ravi (a fictional character)
1st day of the month
Ravi – Hurray! Salary credited 🙂 I will be disciplined with my expenses this month. I will build my emergency fund. I will invest in my house downpayment.
20th day of the month
Ravi – Omg! I am yet again broke. I need to borrow money to manage my expenses for the rest of the month.
If this is the kind of self-talk you are having every month, then my friend, you only need one friend in your life “Monthly Budget” / “Finance Planner”
A monthly Budget may sound very boring. It may seem exhausting. It may even seem uncool. But this is the only path that will lead you to achieve your Financial Goals and bring much-needed financial stability in life.
In this article, let’s figure out how to make a realistic finance planner that will satisfy your needs, help you enjoy your wants, and enable you to accomplish your investment goals.
Steps to make an awesome Monthly Budget / Finance Planner
1. Know your numbers
The first step to plan your monthly budget is to know your numbers very well. In the first month, you can just document your incomes (salary, interest, rental income, freelance income, etc) and expenses (regular, quarterly, yearly, need-based, etc)
This will give you a simple understanding, of where your money comes from and where it goes. You will become aware of the expenses which are the enemy of your savings. Awareness is the key to tackling any problem. This step’s objective is to simply make you aware of your finances.
2. Categorization is the key
At a first glance at your finances, you may feel like most of your expenses were necessary and the only way to start saving is to earn more. This is a trap. For sure, earning more will increase your money bandwidth, but my friend, earning more will also force you to upgrade your lifestyle and yet again you will feel all your expenses are necessary. You are back to square 1 with your savings!
The key point here is to demarcate between NEED, WANT, and DESIRE. It is crucial to budget your expenses in these 3 categories. Be cautious while doing it, as there is a very thin line between need and want.
Following are a few examples;
Need – House Rent, Groceries, Fruits & Vegetables, Electricity Bills, etc
Want – Shopping, Eating Out, Watching Movie, Gifting, etc
Desire – Car, House, International Vacation, Early Retirement, etc
These categories should be very personal. There is no standard for it. You need to decide what is your need, what is your want, and what is your desire. Generally, desire is something which you want to save /invest your money for
3. Time for making Financial Goals
Most of us dream to own a beautiful house, drive an amazing car, visit splendid places for vacation, enjoying early retirement & work for satisfaction, not for money, buying a dream gadget, owning a beautiful jewelry piece and the list is endless. All these are our desires and dreams. But, if we just keep dreaming, it will be a dream forever. It is time to convert these dreams to your goals as in Financial Goals.
Defining a goal gives you clarity of what you want and by when. It helps you chalk out a plan to achieve it.
Let’s take an example; You have been dreaming to buy a diamond necklace since you started earning. It has been 5 years, and you still dream of it. You always feel I don’t have enough money, I need to earn more or save more. Let’s say you decide to make it one of your financial goals – “I will buy a diamond necklace costing 1.5 lakhs INR on my 30th birthday”. This gives you clarity on what it costs & how much time you have. There are 20 months before you turn 30. You will decide to save/invest 7500 / month for this goal. That’s all, by the time you turn 30, you have the fund required to buy your dream necklace.
Financial goals push you to visualize your life. The earlier you plan, the better it is as you can invest your money in various instruments and grow your money.
4.Make a Customized Budget Tracker
Now that you know your numbers well, you have categorized them, and made your financial goals, you are all set to prepare your BUDGET TRACKER.
A budget tracker can be in many forms;
- A humble notepad
- A functional spreadsheet
- A fancy app
The crucial point is it should work for you and meet your objective.
To give you a head start to prepare your tracker, I am providing a link to a downloadable google sheet template which is one of my simplest & beginner-friendly versions of the budget tracker.
Please click here to access the google sheet and download it to edit it.
5.Regular Tracking & Review are the way forward
Two of the most neglected parts of budgeting are tracking & review!
You have a great finance plan & functional tracker. You will track your finances diligently in the first 2 weeks. Then, you have an impromptu vacation plan & your finances are shaken. You feel like starting again from next month as this month is spoiled. That is a trap you should be careful about. You need to acknowledge that we are humans and sometimes we will fail in following a plan. That is ok. We all do that. It is important to bounce back, review your plan & make necessary changes so that you don’t lose the bigger picture.
Scenarios when you need to revisit your finance planner;
- Unplanned or emergency expenses
- Increase in income flow
- An increase in expenses under the category of “Need”
Remember, this system is to make you manage your finances better. The most important thing than any of the above points is you should be comfortable with the system.
Hope you are all set with your amazing budget tracker and you are ready to rock your finances.