Budgeting is the most important component to achieve financial planning. It results in an in-depth understanding of where the funds are being spent. It not only results in savings but also helps to minimize debt troubles. It sounds easy, but if it was so easy, million of people would have used to get a debt-free life.
Budgeting in simple terms is to live within financial means. However, people in today’s world are spending beyond their means. The easy availability of credit has resulted in financial mess. A budget helps people to spend under control. They learn to live below their means, and spend less that what they earn.
Budgeting doesn’t imply that people need to forego their dream to buy things. It just implies small little changes have to be made in the way they spend their money. They can start with their budgeting process with a simple notebook, a pen and a calculator. Take all these things, and annotate all the things on which money is spend in a month. Make sure to write down everything. It will let you know where the money is going. Once you have made list, it becomes easy to track monthly or even dally expenditures. It might seem a useless process, but is the only way that lets you know where money seems to slip away for useless things in a month.
Apart from preparing list, it is also important to make changes in the way you spend money. Some of the simple ways are:
Buy all the necessary household things at one time. Before entering supermarket, make a list of things that are required so that you don’t end up in buying things you don’t need.
Make sure that you don’t overspend on eating in restaurants. Family hangouts are required but they should be done in well defined means.
Allocate funds to pay necessary bills first. Do not allocate money for the miscellaneous expenses as you have been doing in the past. For instance, if you have been spending Rs 1000 per month on entertainment, cut it down to Rs 500. The money saved can be used to pay the debt.