How To Plan A Home Budget And Achieve Your Goals: 7 Steps

home budget

“A budget is telling your money where to go, instead of wondering where it went.” – Dave Ramsay.

A home budget is a spending plan that accounts for a household’s income and expenses. A budget can help you manage your money wisely, relieving you of stress and sleepless nights. Making a budget helps you understand where your money is going each month and allows you to develop a savings plan. With a household budget in place, you can easily track your spending, save, and monitor and reach your financial goals. The 50/30/20 rule can be applied to a household budget. It’s a simple yet effective strategy for assisting an individual in reaching their financial objectives.

Plan Your Home Budget and Start Your Savings Journey With Us Today

It is generally accepted that in the absence of a large income, there is no way to save up for something expensive. But this is not entirely true: you can learn how to plan a home budget so that there is enough money to meet your daily needs, and save for your high end goals. That is why today, in this article we bring to you 7 simple steps on how to plan/make a home budget.

Why Is A Home Budget Important?

A budget is essential to keep track of expenses and income, to identify spending patterns, develop savings, and to avoid falling in the debt trap. A budget is a family financial plan or blueprint for managing your money; without which it may be easier to overspend.

Here are a few points that make us understand the importance of making a budget:

To manage or avoid debt

Many people find themselves weighed down with hefty interest payments on credit card accounts because they simply spend more than their income each month. A basic rule of budgeting is to make sure that your monthly expenses do not exceed your income.

Read: How to Get Out of Credit Card Debt- Step by Step Guide

To achieve short and long term goals

For instance, you want to buy a car next year or a home in the next five years, or you plan a foreign trip. A budget plays an important role in determining how much money you need to save each month to reach those goals and how to allocate that money accordingly. A budget is a way of forcing you to make savings in some way or the other.

Read this: Money Saving Tips-15 Best Proven Tips on Saving Money

Finding It Difficult To Save? We Are Here For You!

To prepare for a rainy day

The fact that many of us live paycheck to paycheck, and few have a rainy day saving or fund, requires more households to build a cushion for unforeseen situations like a car break down, home repairs, loss of job or medical emergency.

Encourages investing

The practice of making a budget instills individuals with the motivation and discipline to manage their finances more proficiently and maturely. Research shows that those who prepare a budget and adhere to it are more likely to reach their financial goals as they become emotionally involved in the process.

How to Make/Plan a Home Budget?

If you’re wondering how to plan a home budget, here are some simple steps to make/plan a home budget:

Set Goals

The first step in planning a home budget is to set goals. The goals you set are yours; you need to choose what is important to you and design your goals accordingly. Most people’s money problems occur because they don’t clearly know what they want to do with their money and therefore spend it randomly. You must set goals which are realistic and most important write down your financial goals. Experts say if you write down your goals and work towards them, you are sure to achieve them. Think about how much you need to save and for how long you will have to save when setting financial goals. Then make a plan how you will accomplish that savings.  

Calculate Monthly Income

Once you have set some goals, it’s time to look at where your money comes from and where it goes. Determine how much money you earn each month. This will set the limit for how much you can spend (and save) each month. Make sure you calculate your net income, also known as your “take-home pay.” This is the money you have left over after taxes and payroll deductions.

Importance Of Saving Money: Why Is Saving Money Important?

Calculate Monthly Expenses

The next step in planning how to make a home budget is to list down the expenses. Tracking and categorizing your expenses can help you determine where your maximum spending is and where it might be easiest to save. Some of your monthly expenses are fixed, like rent, property taxes, education expenses of children, loan payments etc. while others may vary, such as electricity, water, and groceries. There are some expenses which occur yearly like premiums. For such expenses you need to divide the yearly expense by 12 and add in the monthly expense. Then, there are some expenses like entertainment, shopping, hobbies and dining out. You must keep a track of these expenses because this is the place you tend to spend more.

Distinguish Between Needs and Wants

As you track your spending, you may discover that some of the money gets used for things you really don’t need. Instead, you merely want them and often buy them impulsively. Impulse spending is unintended spending; purchasing things that you may or may not need, or spending more on an item than you’d planned. The key to good money management is separating needs from wants. If you aren’t sure if an item is a need or a want follow the 30 day challenge. It means if you want a particular item, wait for 30 days and do without it. If after that time you truly can’t live without it, it may be a need.

Make A Plan

Many people dislike the word “budget” because they associate it with limitations, deprivation, and a lack of funds to spend on fun activities. Relax, your budget is your spending plan; it will allow you to live within your means, avoid the stress of money problems, and give you the freedom to make choices with what you have. Most importantly, a budget will help you map out a strategy for achieving your goals. But you must be sure that your expenses are not more than your income.

One popular thumb rule for making a budget is the 50/30/20 budget rule. The rule states that you should allocate 50 percent of your income toward needs, 30 percent toward wants and 20 percent for savings. It is up to you to allocate spending within these categories.

Know The Difference Between Savings and Investment – Saving + Investment

Plan Your Savings

Investment icon Warren Buffett said: “Do not save what is left after spending, but spend what is left after saving.” So, one of the first things you should put in your budget is savings, whether it be for an emergency fund, a new car, a down payment on a home or other purposes.

Savings may be the furthest thing from your mind if you are facing financial difficulty. Nevertheless, even during this time, it is very important that you plan to have money for the unexpected. It not only protects you from financial disaster, it also helps you to meet your financial goals and finally achieve financial freedom. People who have savings available to pay for living costs do not need to rely on credit if an emergency arises. For example, if you lose your job, it usually takes 3 months to get back on track with a new source of income. During this time, you still need money for rent, groceries and other essentials; this is what your emergency savings is for.

Now the question arises, how much do I need to save? There is no magic number that tells you what you should be saving each month. It depends on which stage of life you are in, your income level, your debt load as well as your financial goals.

If you aren’t in the habit of saving or have outstanding debts to pay, you may find it difficult to save. However, it’s important to get started. Save a small amount from your salary at first and increase the amount as you are able to. You’ll be amazed at how quickly your savings can add up once you just get started! There are several money saving apps which will help you.

Chit Funds are excellent savings and investment vehicle. It instills the habit of mandatory monthly savings as well as the added benefit of borrowing multiples of your savings in the event of a financial emergency. The basic idea is that a group of people invest equally and divide the profits. The process is simple:

  • Download The Money Club App.
  • Go through the verification process.
  • Join the Pilot Club, which is basically a demo.
  • After that you move to higher clubs. Save money and earn interest (10%-15% p.a.) more than what you would get in bank FD and RD (3%-6% p.a.).

The Money Club is an online chit fund platform. We are a one-stop shop for risk-free savings with high interest rates. We currently have over 3 lakh satisfied customers.

You can read: Traditional Chit fund Companies vs The Money Club

Know Your Journey on the Money Club platform

 Know how the Money Club app works.

Alternative To Fixed Deposit: 14 Places To Invest Better Than FD

Financial Planning For Women: 10 Money Management Tips

Track Your Budget

Any good plan must involve monitoring, periodic review, and occasional re-evaluation. Circumstances may change, your needs may vary at different times in your life. For example, you may get a hike in your salary, your expenses may change or you may reach a goal and want to plan for a new one. You can revise your budget to account for changes in your spending habits and income. Once you’ve planned your budget, you must review it monthly initially and later you can do it every 3-4 months.

Key Takeaway

There are many ways for saving money to make a strong house budget plan. By saving regularly and consistently, you can feel more confident about your financial goals. Making a budget is an effective way to keep track of your spending, gain a better understanding of your financial habits, and encourage saving.

By the end of the article you might have got a clear picture as to how to make/plan a home budget. Planning a home budget is not a difficult task, but it does require persistence and dedication.