How to Plan Monthly Budget – A Step-by-Step Guide

While very few people enjoy budgeting expenses, it is indispensable to do sound financial planning. Setting up a household budget helps you plan costs and provides an insight into the spending habits. Accordingly, you can curb your costs more easily and concentrate on necessities. The current high inflation environment leaves people strained when it comes to affording their regular expenses, let alone saving at the same time. Although a month’s budget will not beat inflation, establishing one will help reduce the stress of handling finances.

If you are planning to prepare a monthly budget for your family, here is a step-by-step guide to do that successfully.

What is a Monthly Budget?

A monthly budget is a plan for spending money in a month. It helps you plan the recurring regular expenses, including utilities, rent, credit card payments, loan EMIs, etc. Ideally, the primary aim is to spend less than you earn, giving some room to save money. 

A monthly budget helps you plan the upcoming expenses rather than face a financial crunch in case of an emergency. It makes you more mindful when spending money, as it prioritises expenditure on essential things rather than non-important expenses.

Why is Budgeting Important?

Setting up a household budget carries multiple benefits, including the following:

• More financial savings in the account
• Timely bill payments
• Efficient coverage of unplanned expenses
• Avoid overspending
• Peace of mind that comes from efficient financial management

Also Read: Unexpected Expenses: Meaning, Types, And How Can You Plan For Them?

5 Steps to Make a Monthly Budget

A monthly budget lets you see where you are spending and saving the money and learn how to do both effectively. Follow these five steps to prepare a monthly budget for your family:

Calculate Your Monthly Income

The first step is to calculate your monthly income and determine how much you spend each month. When calculating your earnings, evaluate your consistent income sources, including your salary paycheck, rental income, profits from investments, etc. After adding all your earnings, measure your net income and subtract the tax payments and payroll deductions.

List Your Expenses

After calculating your income, get a sense of your expenses over the last few months. You can track your spending manually on pen and paper or using a budgeting app. Based on this information, you can see whether you spend less or more than your income in different categories. Don't miss the annual expenses instead of monthly, such as car insurance, property taxes, veterinary or doctor visits, vacation costs, etc. Listing your expenses is important to continue with the next step in the process. 

Also Read: 8 Financially Prudent Habits For Financial Stability

Categorise and Prioritise Expenses

Once you calculate your income and spending, review your expense history and ensure it aligns with your financial obligations and priorities. There might be some expenses you cannot avoid, such as food, transportation, school fees, housing, etc. Not keeping an eye on your expenses often leads to overspending on non-essential things. For instance, when tracking your past expenses, you may realise you spend too much on dine-outs or subscriptions you rarely use.

Categorising and prioritising expenses help allocate money in a manner that makes the most sense. Once you identify where your money goes each month, you can change your spending habits to save more or put sufficient money towards hobbies, entertainment, and other activities.

Create a Budget

To plan a monthly budget, list the items corresponding to each category of expenses. The best strategy is to take care of your essential spending, such as loan EMIs, house rent, utility bills, insurance premiums, etc. Common expense categories include rent and mortgage payments, property taxes, gas charges, car insurance premiums, food utilities, childcare, insurance, loans, medical expenses, car and home maintenance, travel, clothing, personal care, entertainment, hobbies, etc.

Now, look at your past expenses and see if they align with your financial priorities. If you spend more on unnecessary things, create a monthly budget from scratch to align it with your goals. Follow the 50/30/20 rule to build a budget. Here, allocate 50% of your income for needs, 30% for desires, and 20% for savings. Budgeting has no strict rules as long as your expenses let you achieve your financial goals. The basic idea is to spend less than your earnings each month. 

Also Read: 5 Personal Finance Moves You Should Take With Your Salary

Monitor and Adjust Your Spending

A month’s budget is a flexible document that you can change over time according to your changing income and expenses. After building your budget, track your expenses and follow your plan. However, your life circumstances, income sources, and financial priorities may change over time. For instance, if you borrow a new loan, you may need to adjust your budget to accommodate the EMIs. Therefore, regularly reviewing and revising the budget as needed is crucial to a successful strategy.

How Can a Personal Loan Help You If Your Monthly Budget Exceeds?

If your monthly budget exceeds, a Personal Loan can efficiently help bring it on track in the following ways:

• Lets you cover the required expenses without touching your savings
• Provides instant access to funds when the need arises
• Distributes the expense into easy EMIs 
• Flexible repayment options with EMIs suitable to your monthly budget
• Competitive interest rates

Also Read: Top 5 Ways To Be Financially Stable

Steps to Apply for a Personal Loan Online

Follow these steps to apply for a Personal Loan online:

Step 1: Download the instant personal loan app or visit the official website of Hero FinCorp.

Step 2: Register using your mobile number.

Step 3: Fill out an online application form

Step 4: Fulfil the document required for Personal Loan

Step 5: Wait for approval.

Step 6: Accept the loan offer and get disbursal directly into your bank account

As inflation rises, the significance of budgeting expenses becomes more prevalent. Setting up a household budget efficiently tracks expenses, increases savings, and improves your financial habits. If things go haywire, take the help of a Personal Loan to bring your finances on track and improve your credit rating with regular repayments.

Also Read: 9 Basic Reasons Why You Must Save Money

Frequently Asked Questions

1. How do I create a budget if I don't have a fixed income each month?

If your income varies monthly, track your last year’s earnings and divide them by 12 to calculate your average monthly income. Now, you can create your budget by reducing the unnecessary expenses.

2. What expenses can I cover with a Personal Loan?

A Personal Loan has no end-use restrictions, making it suitable for various expenses like weddings, education, medical emergencies, foreign trips, debt consolidation, home renovation projects, etc.

3. How do I calculate my net income?

You can calculate your net income by adding all your earnings and subtracting taxes and deductions.

4. How does a month's budget increase savings?

By creating a month’s budget, you can keep track of your income and expenses and avoid overspending on unnecessary things. That way, you have more money for savings after meeting all the necessary expenses. Follow the 50/30/20 rule to create a budget and align it with your financial goals.

5. How to keep loan EMIs affordable?

Choosing the right repayment tenure is the best way to keep loan EMIs affordable. If you have a limited budget, opt for a longer tenure, increasing the total loan cost but reducing the monthly EMI size. Use an EMI calculator to choose a term with easily affordable EMIs.

Disclaimer: The amount available may vary based on multiple factors for monthly budget management, including but not limited to individual circumstances, eligibility criteria, available resources, and the specific policies or guidelines of the funding source. Any figures or estimations provided are for illustrative purposes and should not be considered guaranteed. It is advisable to consult with relevant authorities or financial experts for accurate and up-to-date information regarding monthly budget management loan options and their potential amounts.