What is the term budget?

You must have heard the term budget numerous times whether about government budgets, client budgets, or your budget. A budget refers to anticipated incomes and expenditures for a given period which could be a week, a month, or a year. It allows an individual to exercise control over their money.

Budgeting can be an extremely useful tool that helps you stay on track with your financial goals. This article will guide you through one of the most common budgeting methods: enveloping. Using this method, you sort all your expenses into categories (or envelopes); rent, food, travel etc. You then assign a proportion of your income to each expense category. 

Getting started with your budget

Firstly, you should note down your total monthly income after accounting for tax, and any other automated deductions such as health/life insurance. Once you know your monthly income, you can estimate your average expense for each category. Certain expenses are fixed such as rent or student loan repayments. While, for uncertain expenses like food or entertainment, you can put down your best estimate.

Budgeting is an iterative process, so you can keep revisiting each month and adjust your target expenditure accordingly. To make it simpler, in the beginning, you can use the 50/30/20 trick. Here, 50% of your after-tax income should fund your needs like rent, utilities, groceries, and transport; 30% should go towards your wants like dining out or shopping. The remaining 20% could be used for a financial goal, or just as a fund for rainy days. There are many apps available on both android and iOS that you could use to set up your budget. 

Other tips for budgeting

After a few months of budgeting, you will start noticing some unnecessary expenses. This will further help you to cut down costs and save more for your emergency fund or debt repayments. It is advisable to keep your savings in a separate account that will prevent you from using that money unintentionally. We also want to make sure that we are protecting our savings against inflation (an increase in the cost of living). The best way to tackle this is by investing in equity, mutual funds, or bonds.


Yatharth Garg


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