This guide aims to help you start budgeting and keep careful track of all your spending.

On the 7th of the month, your paycheck arrives, a welcome relief. But by the 17th, it's all gone, leaving you wondering where it vanished. If this sounds familiar, take heart; you're not alone. Many of us struggle with financial management. It's frustrating to watch your funds disappear without a trace. That's why it’s important to exercise budgeting and tracking expenses. In this article, we'll go through some simple steps to help you adopt these practices and have a better grip on your money matters.

Budgeting and Expense Tracking

Budgeting and expense tracking go hand in hand. Making a budget is the first step towards wealth creation. While it may not directly generate returns, it saves funds that, if invested wisely, can lead to substantial returns. Tracking acts as the catalyst, making budgeting work better. Tracking your daily expenses gives you a blueprint of your spending habits. By mapping out your expenses, you become aware of unnecessary spending and can control overspending habits. This ultimately protects you from stress and anxiety and ensures your money is used resourcefully.

Now that we understand the importance of budgeting and tracking expenses, let’s get started with its steps.

How to create a budget?

There’s no one size fits all rule for budgeting. You can follow popular frameworks like the 50/30/20 rule or zero budgeting rule or create your own ways to manage your money. Here are our recommended steps to help start your budgeting journey easily:

Assess your income

Tracking your income is the foundation to your budget. Jot down all your sources of income – salary, rent received, interest received, freelance gigs, dividends and any other sources you may have.

List your expenses

Take reference from previous month’s bank statements and credit card transactions and make a list of all your expenditures. Some expenses you may include are fixed expenses like rent, utilities, groceries, loan payments, and insurance premiums, alongside variable costs such as medical bills and entertainment. With these expenses listed, categorize them appropriately. This categorized overview serves as a valuable reference point for making your budget plan.

Portion out your funds

Once you've gained insight into your monthly income and expenses, develop an allocation plan to distribute your earnings across essential categories such as necessities, savings, debt repayment, and discretionary spending like entertainment.  Set a limit to each category and stick to the fund allotted. Make sure that your expenses do not exceed your income.

For example, suppose your monthly paycheck totals Rs. 1,00,000. After accounting for essential expenses at Rs. 40,000, debt payments at Rs. 20,000, and approximately Rs. 20,000 for entertainment and miscellaneous expenditures, you decide to allocate Rs. 30,000 for savings each month. Now, if there’s any deviation in monthly expenses, you can come back to the budget plan and see where you can cut down on the unnecessary spending.

Adjust and Track

Do not stick to the same plan throughout. Periodically review and adjust your budget as needed to accommodate changes in income or expenses. If there’s a hike in your earnings, consider allocating a larger portion towards savings. Similarly if there’s a rise in your expenses, cut down on spending that can be avoided.

By following these simple steps you can set up your budget and track it regularly. Once you get into the practice of budgeting and maintaining discipline, you can try other methods to optimize your cash flow as per your needs.

How to monitor spending?

Sticking to the budget is essential for achieving its purpose. While it may be challenging at first to stay within the allocated funds, regular expense tracking can help improve money management skills. Follow these steps to develop the habit of monitoring your budgeted expenses:

Choose Your Tool

Select a method for tracking expenses that works best for you, whether it's using budgeting apps, spreadsheets, or old-fashioned pen and paper. When choosing your expense tracking tool, consider factors such as ease of use, compatibility with your financial institutions, customization options, and any additional features.

Nowadays, budgeting apps offer the most efficient method for expense tracking. These apps automatically monitor your spending across various platforms like, UPI transactions and credit cards, reducing the risk of overlooking any expenses

Record Every Expense

Make it a habit to record every expense, no matter how small. Even small expenses can add up over time and amount to a big sum. To avoid such expense leakage, make it a habit to record each expense as soon as possible after it occurs. It ensure accurate and consistent expense tracking.

Tracking every expense increases your awareness of where your money is going making you mindful of your purchases.

Categorize your expenses

Grouping expenses together provides clarity and insight into your spending behavior. Organize your expenses into categories (e.g., groceries, transportation, dining out) to identify where you may have overspent or made unnecessary purchases. Set limit to each categories and cultivate disciplined spending within those boundaries keep your spending within those limits. This practice builds willpower, helping you avoid nonessential expenses and maximize the potential of your money.

Review Regularly

Set aside time each week or month to review your expenses, comparing them against your budget to check if you're staying on track. Regular reviews helps you notice spending patterns such as recurring payment which can be eliminated or reduced. It also helps to assess whether your budget allocations are achievable or need adjustment.

To utilize expense review at its best, set specific goals for improvement based on the reviews. These goals could be reducing voluntary spending, increasing savings contributions, or paying down debt.

Use Alerts and Notifications

Take advantage of alerts and notifications offered by budgeting apps or banking institutions to stay informed about your spending in immediate time. These alerts could be for low balance reminders, large transactions, bill payment reminders, etc. These alerts can help you proactively monitor your money effectively.

Conclusion

We hope that this guide has provided you the direction and the confidence to start budgeting and expense tracking. These tools are compulsory for achieving financial stability and achieving your financial dreams. By following the steps outlined in this guide and committing to regular review and adjustment, you can take control of your finances, reduce financial stress, and move from saving to wealth creation.