Personal budgeting involves tracking income and expenses to understand how to allocate money and achieve financial goals. It is important to prepare a budget to identify goals, manage money better, increase savings, and prepare for emergencies. A personal budget should determine income sources, average income over 6 months, categorize expenses as fixed, variable or discretionary, average expenses over 2-3 months, compare income to expenses, set financial goals, and regularly review progress. Proper budgeting leads to financial security.
2. What is Personal Budgeting?
A budget is an assessment of income and expenses for attaining financial goals
Personal budgeting is about understanding the equation between an individual’s
income and expenses to regulate the usage of money.
Understanding personal budget results in a healthy financial life of an individual.
3. Key Elements
This presentation will help you understand-
Importance of Budgeting
Steps to be followed
Ideas
4. Why prepare a budget?
Why is budgeting important What happens when you don’t have a budget
• Helps you identify and achieve financial goals
• Helps you manage your money
• Increases your saving
• Directs your money flow.
• Prepares you for contingencies
• Provides sense of financial security
• Without a budget, your are unaware of your
financial situation.
• By surviving month to month, you are not
prepared for any emergency.
• No budget = No savings.
• No investment ideas if you do not know your
budget
• Absence of a budget can keep you in debts.
5. Preparing your Personal Budget (Step 1-3)
• Determine how to track the
budgetary information.
Step 1
• Determine your income
from different sources
• Average out income over
a longer period- minimum
of 6 months
Step 2 • Determine your expenses
by dividing into 3
categories
Step 3
Discretionary
category
WANTS —expenses
on recreation &
entertainment,
vacations, gifts,
similar other
expenses
Variable category
NEEDS—Expenses
on grocery,
fuel/transport, phone
calls, medical, similar
other expenses.
Fixed category
Home loans, taxes,
insurance, child
education, Insurance
premiums
Loans should not exceed
50-60% of income
Expenses that cannot be
modified
Average out your
expenses
Track your expenses for
2-3 months
Do not change the
spending habits
6. Preparing your Personal Budget(Step 4-7)
• Compare
• income> expenses
• Income< expense
• Income =expenses
Step 4
• Determine your financial
goals
• Child education/ marriage,
retirement
Step 5
• Improve your situation by
increasing your income.
• E.g alternative sources of
income or increment
Step 6
Step 3
Step 7
Review and evaluate
your progress
7. Additional Saving Ideas
Cut down on unnecessary expenses least till the time your financial
situation is stabilised
Keep a watch on your monthly expenses
Invest a small portion of your income in the best available savings
schemes commensurate to your income
Avoid using market credit (credit cards, personal loans etc) or if you
must, keep it at minimum
Opt for additional source/s of income
8. Key highlights
Devising a basic budget of personal finance is the key to financial security
The basic comparison between income and expenses determines the financial
objective of an individual
Monitoring is more important than planning, keeps you updated on a daily
basis and helps you remain on track
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