How to set a simple Budget Planning 2017



How to set  a simple Budget Planning 2017 ?:




Budget is a term which referred to, 'A Sum of money allocated for a particular purpose '.


Annual Budget of a Government every year is an exciting one for everyone, but it's a Pokey (Laggard) one for announcing their own personal budget. Before making (or) set a Budget plan, we have to understand why we need a Budget (or) Budget Planning ?


'Budget' allowing us to create a Plan for Spending of our money and also it helps to ensure that we have a enough money for the things we need.  A personal budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment.

 

Investopedia also refers the following 6 Reasons, why we need a Budget: 

 



  1. It helps you keep your eye on the prize.

  2. It ensures you don't spend money that you don't have.

  3. It leads to a happy retirement.

  4. It helps you prepare for emergencies.

  5. It sheds light on bad spending habits.

  6. It's better than counting sheep.


(Source:  http://www.investopedia.com/financial-edge/1109/6-reasons-why-you-need-a-budget.aspx )

 


Before making a Budget Planning, you should track yourself about the Income, Expenses and Savings / Investing. Then, how to track ?

 



  • Take / Open a New Notebook (or) Use Expense Manager App - Write down your Daily Income (Mostly Salary  by month), Expenses and savings /Investing, if any.



  • Calculate the Total at the end of month (Income, Expenses, Savings/Investing)



  • Do it for the Next 3 Months.



  • Now, you have a clear idea that you have a Personal Quarterly Financial Report(PQFR) :)  - Income, Expenses, Savings/Investing and Balance available if any.



  • Track your individual objective expenses (Like Transportation, Food, Entertainment,etc), Income or Cash Flow, Savings/Investing for the last 3 month. And now set an Average expense price for every objective that what you had spent in the past. (Eg: Transportation - 1000/-, Entertainment - 1200/-, Eating out - 1000/- ,etc)


 



Set a Budget Planning:



 



  • We are going to set a Budget Planning using Budget 50:30:20 Method.

  • Calculate your Income / Salary / Cash flow after Deductions such as Taxes, Pension Contribution. - Now you have a Take Home pay

  • Limit your Needs - Up to 50 % of your Take Home pay (Mandatory or Fixed Expenses)

  • Limit your Wants -  Up to 30% of your Take Home pay (Day-to-Day Expenses or Flexible expenses) 

  • Spend at least 20 % on Savings / Investing / Debt Repayments (Financial Plan,Loan)


 

Illustration:

 

Mr. 'X'  getting a Gross Salary of ₹ 3,00,000 per Annum. After deduction of 20% (Tax, NPS/EPF), his net salary arriving at ₹ 2,40,000 per annum. i.e., ₹ 20,000/- monthly.

 


Gross Salary - ₹ 3,00,000 / Year

Net Salary - ₹
2,40,000 / Year (or) ₹ 20,000 / monthly

 


Monthly Expenses / Savings / Investing:




  • Mandatory (Fixed) Expenses: (₹ 10,200/-) -  51 % of his Net Salary


 
·       

    ( Accommodation / Rent, Transportation,Food, Utilities(Phone,Internet,TV), Electricity Bill,  Insurance)


  



  • Day-to-Day Spending (Flexible): (₹ 6000/-) - 30 % of his Net Salary


 
·        (  Entertainment, Hobbies,Outing and Eating, Shopping, Fitness) 

 




  • Savings / Investing / Debt Repayments: (₹ 3800/-) -  19 % of his Net Salary


 
·       ( Retirement Fund, Emergency Fund, Car Loan, Foreign Trip)

 


 

 


Budget Value Analysis:







  • Take an average expenses, income, savings/investing/debt repayments for every objective

  • Divide the Monthly Expenses, income, savings/investing/debt repayments by the monthly income /Cash flow

  • Take the value of every objective.

  • Some analysis for you...


If Mandatory Expenses plus Day-to-Day spending (MED) / Net Salary  is,




  •  <  0.75               - Good and Great !

  •  >  0.75  <  0.85  - Be Cautious

  •  >  0.85  <  1.00  - Bad / Worst

  •  >  1.00               - You may Bankrupt :(


If Savings plus Investing (SI) / Net Salary  is,





  •  > = 0.25         - Good and Great !

  • < 0.25 > 0.10  - Try to increase the level

  • < 0.10             - Your kid is awaiting for you / You may depend someone for your                                           Retirement.


 



You can use like the above for analysis with the every objective (Expenses,Saving,Investing). If you hard to calculate, use the Expense Manager and get it on !



Budget Planning with Rich Investing :)


RICH INVESTING IDEAS – www.richinvestingideas.com


Comments

  1. canoritApril 17, 2022 at 5:36 AM

    Excellent post. I really enjoy reading and also appreciate your work. This concept is a good way to enhance knowledge. Keep sharing this kind of articles, Benefits Of Investing in Stocks Thank you.

    ReplyDelete

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