Money & Banking

A guide to monthly budgeting

R Venkatesan | Updated on October 13, 2019 Published on October 13, 2019

When you make an expense through a card, net banking or through digital apps, track your actual spending every month and see how it compares with the budget.   -  REUTERS

Monthly budgeting is a vital part of personal financial planning. Do you know why? As the adage goes, if you spend less than the amount you earn, life will remain peaceful.

One good way to keep track of both income and expenses is to prepare a financial statement month after month. However, this exercise may seem a little tedious to many. But it has its own benefits. This exercise can help keep your spending on track, uncover any deficit, and help free up funds to address this gap.

Creating a statement is not a big deal. More important is to follow it. It can be like going on a diet ― you start with good intentions, but after a few weeks/months, you drift away from this exercise. Do not let this happen to you.

So, here it goes. Let’s start off with the age-old practice of budgeting through envelops/containers. Though it may sound outdated in the current consumer era, we can replicate this concept effectively.

What’s envelope budgeting

The envelope budgeting method is a simple, systematic way of saving money and paying bills. This method helps you set aside what you need for bills while maintaining a personal budget.

Before the digital era, almost every household used to budget the monthly spending through the envelope or container system, where each envelope/container would have a label. It did wonders in those past years.

This system can be very successful for three key reasons. First, when you spend cash, it hurts a lot more than using credit/debit cards. You end up spending less. Second, when you pay with money, it’s settled, and that’s it. You don’t have to worry about having to pay it off in the future when the credit card bill comes in. Third, when your envelope is empty, you just can’t spend any more.

This method is still in practice in rural areas despite the government’s aggressive push to move to a cashless economy and digital payments.

How to replicate it in today’s age

The age-old practice of envelope budgeting has now become outdated. So, how do we replicate it in today’s digital age?

You can still manage finances in this digital era by merely maintaining a hand-written statement of accounts of the monthly income and expenses. The significant areas of expenses can be categorised under housing, transportation, other living expenses, savings and debt payoffs.

When you make an expense through a card, net banking or through digital apps like Paytm, PhonePe, or Google Pay, among others, be sure to record it appropriately. Track your actual spending every month and see how it compares with the budget, then adjust your spending as needed. Though it’s time-consuming work, the rewards are pronounced.

Though not used personally, there are many online budgeting tools like MS Excel sheet, template sheets, apps and other software tools which are user-friendly.

Thus, we can still get the best of both worlds―benefit from cashback and other attractive offers from digital players, and spend prudently.

Indeed, monthly budgeting allows you to prioritise your spending and track how you are doing financially. By living within your means, you can indeed prepare well for the future.

Published on October 13, 2019
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