How to Make a Yearly Budget?
Making a yearly budget is an important part of keeping our finances healthy. By making a budget we can keep a track record of how much you earn, how much you spend, and how much you save. By making a budget we can plan our spending. Making a budget also helps in making big purchases like a car or a house or any other thing systematically without disturbing our finances much. Making a budget also helps us in achieving our long term goals. It can also help us in limiting our expenses to only necessary things and not doing many extra expenses.
→ List your sources of income
Make a list of all your sources of income. Sources of income can include your job salary, business income, rent received from the tenant, dividend from stocks, income from tenant farmer, etc. Now when you are done with your list you can add them up and now divide them with 12 so that we can get the estimate of monthly income.
→ List all your expenses
Get all your bills of the past 3-4 months and divide them on the basis of (1) essential necessities like electricity bill, gas bill, mobile bill, groceries, etc., and also get all your annual bills like house tax, income tax, etc. While considering annual bills do divide them with 12 so that we can get an estimate of monthly expense (2) non-essential necessities like a movie, vacation, shopping, etc. So after division add these bills separately.
→ Get your amount left with you
Now we have the total of our monthly income, essential expenses, and non-essential expense. So now firstly subtract essential expenses from monthly income. Now if you feel that your expense is near to your income or are more than your income then you will need to make your necessities lower.
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→ Saving
If on the normal case if you are available is much of your amount then you first need to prioritize savings. After getting the difference of your essential expenses from your income, you will be getting 20% of your income for your saving. Your saving includes getting 25% of that money out as an emergency fund. rest 75% you will invest as the following way: (1) we will be applying 100 - age rule, it is a rule which helps us reduce our risk according to our age, so as its name says you will need to subtract your age from 100, didn't get it? It's all right let's get it with an example so if your age is 25 and you saves 100 after subtraction of emergency fund, so you will subtract 100-25=75 so now we have the difference as 75 so as per the rule we will be allocating 75% of our portfolio into stocks, which can be said as risky bets. Now you will be allocating the difference percentage of your portfolio into stocks. So if you feel that picking stocks is not your type of thing then simply just do SIP in index funds, it is even recommended by Warren Buffett. And with the rest of the money you can invest them into safe assets like bonds, etc.
→ Non-essential or Discretionary Spending
So after savings, you are also left with some money, with this money you can have dinner, movies, gifts, etc. There are some situations when we want to do according to our budget but we are not able to that's completely alright but to compensate you can divide that big-spending into small parts, for example, if you spent Rs. 1000 out of your budget then you can compensate it by dividing it into whatever parts you feel comfortable with here we take it as 10 so we will need to subtract Rs. 100 for 10 months from Non-essential or Discretionary Spending and keep it aside by this way you can compensate your expenses.
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→ If under a big debt
If you are under debt then your first priority is to clear your debt as soon as possible. For this, you can lower your Non-essential or Discretionary Spendings and even you can lower your savings percentage until you clear your debt after clearing your debt you can get your savings plan accordingly. if not under debt then you must always avoid taking debt as long as possible. I suggest not using credit cards can also be a good decision as the interest rates are 3-4% credit cards should be kept for an emergency as in case an emergency when you ren out of your emergency funds and need finds immediately then you can use your credit card. And after using the credit card you need to pay it as soon as possible because when you miss your payments you need to pay more interest.
→Control Spendings
If you want a way to control spending you can use various software now available online. Some software tracks our spending and we need to enter data to limit your expenses so that apps alert you when your spending goes out of budget. These apps can also help you to control your expenses.
That's all about Making Yearly Budget
Until next BlueSten Markets Update...
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