Budgeting not only helps plan for expenses, uncertainty and long-term goals, but it also ensures that there are no overspending that would otherwise lead to stress and anxiety.
Here are 5 tips for developing good budgeting discipline for long-term financial security:
Review your lifestyle and calculate net income
The first step in creating an effective budget is to review your current lifestyle and calculate your net income.
“Based on this number, people can create a monthly or annual budget that is sustainable and efficient enough to easily cover regular expenses. Net income is after mandatory deductions for taxes, rent, health insurance and other employer-related benefits such as provident fund,” Sidharth V, Chief Risk Officer, KreditBee, told CNBC-TV18.com.
Set clear financial goals
Achieving financial goals is the main purpose of a budget. Therefore, it is important to clarify these goals and choose a budgeting method that will achieve them well.
The 50-30-20 budgeting method, which states that a person should spend 50% of their income on necessities, 30% on needs and 20% on savings, is the simplest and most popular choice here. However, in addition to these aforementioned buckets, one should also consider retirement plans and any other unfortunate events and strategize accordingly, Sidharth V says.
Pay yourself first
Paying yourself first is a budgeting principle that prioritizes savings and retirement plans over other expenses and discretionary spending. This helps build a corpus of savings that will become part of a future wealth or retirement fund.
According to Sidharth V, the approach discussed suggests that once a certain amount of income is received in a bank account, it is automatically transferred to savings and investments.
The remaining amount after that can be used for any other expenses free of charge upon request.
Settlement of debts
The cost of high-interest debt instruments such as outstanding loans and credit card bills can increase over time. This can lead to budgetary chaos. To achieve true financial stability, it is prudent to pay off all debts early and avoid taking on new ones whenever possible.
“It is important to follow the 70-20-10 rule, where income can be divided into three parts – 70 percent for necessities, 20 percent for savings and investments, and 10 percent for debt repayment,” Sidharth V told CNBC- TV18 . com. com.
Track progress regularly
Progress tracking is an important step in budgeting. As our income grows, the lifestyles, economic environment and priorities around us change.
Therefore, please track your budget regularly and make changes from time to time to reflect any developments in the internal and external environment.
