Tired of expenses leaving a dent in your pocket? We’re here with budgeting tips to save the day.
You’ll be amazed at the benefits of probing into your monthly cash flows. Keeping track of your finances and using the data to make informed decisions will do you a world of good. That way, you will ace at budgeting and won’t be haunted by cash crunches at the end of every month.
Keeping tabs on what’s coming in and what’s leaving your wallet can help you get an insight into your spending habits. This will help you easily tell the majority of expenditures that eat into your monthly paycheck.
How to begin taking inventory of your expenditures
Start by recording your expenses and then categorizing them at the end of the month. It’s not as tough as it seems. Just carry a tiny pocketbook and you’re sorted.
Pro Tip: Use highlighters of different colours to mark expenses falling under specific categories. Not only will it help you sort out your money, but it’ll also make the process more enjoyable than it usually is.
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At first, the areas you’re spending heavily on might come as a surprise. But at least you’ll know if you’re dining out too much or if you need to cut back on the reckless shopping! Thanks to this method, you’ll know if you’re swiping your Credit Card too much!
Now that you know how to recognize the major areas draining out your cash, let’s begin.
The primary reason to track your expenses is to make wiser use of your money. For most of us, it’s difficult to track where our money is flowing. Daily expenses, monthly utilities, and miscellaneous purchases can leave you dazed. So, it’s crucial that you set aside some time each day to calculate your daily spends.
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How to group your spending into broad categories
Category 1: Defined Expenses
These are fixed and necessary expenses that stay the same each month. Expenses include your monthly rent, loan EMIs, and Insurance premiums. These expenses are quite steady and do not change every month.
Category 2: Variable Expenses
The flexible but necessary expenses that vary each month fall under this category. These include your utilities, commuting expenses, and weekly groceries.
Expenses under this category can be lowered by changing your habits. For example, simple changes such as walking or cycling to work instead of getting a cab or making use of discount coupons while ordering food can decrease these flexible costs. For instance, shifting from processed foods sold by premium brands to the local, fresh produce can make a huge difference to your finances.
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Category 3: Optional expenses
This accommodates personal expenses on which you have greater control in terms of how much to spend. This category includes trips to fancy restaurants, retail therapy, and clubbing with friends. No, we’re not saying that you can’t indulge once in a while. What we mean to say is that these are not essential and are often discretionary expenses. When it comes to these, the choice is yours.
Here’s an example of what you can do. Instead of going pubbing with friends and burning a hole in your pocket, switch to house parties. That way you can still hang out with your friends, without being broke at the end of each month.
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What do I do after categorizing my expenses?
Once you’ve tracked your expenses smartly and in an organised manner, you can try breaking up your income and reserving a percentage of it for each category. Say hello to the very famous 50-20-30 rule. This works great for the not-so-budget-savvy individuals out there! If you’re one of them, do take a look at the allocation below:
– Reserve 50% of your income for living expenses and absolute essentials. This includes your rent, bills for utilities and groceries, and transportation costs.
– 20% of your income should be directed at financial goals. This includes your retirement savings, investments, and emergency fund.
– Save 30% of your income for flexible spending. This includes non-essential expenses such as everything you wish to purchase but don’t necessarily need.
Once you begin taking your finances into your own hands, you’ll end up saving a lot for the big plans you’ve got. Imagine the kind of money you can set aside each month. This can go into your travel fund, leaving the traveller in you with a world of possibilities.
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It all boils down to how consciously you make your spending choices. Financial planning is absolutely essential. Luckily for you, we have a ton of options for you to choose from.
If you’re looking for a Credit Card with better rewards or a Personal Loan to pay off your outstanding dues, we’re really happy to be able to help. You can even invest your money in Mutual Funds in just a few quick steps! Check out our website to find financial products that are perfect for you!