A beginner's guide to budgeting
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  • Personal
  • Business
  • Corporate
  • Private Banking
  • Privy League
  • NRI Services
  • Investors

If you’ve only recently started earning your own income, or if you’re just getting started on your personal finance journey, you may find that all good financial advice begins at the same place — budgeting.

Creating a budget is the first step on your journey to financial freedom. And no matter what your financial goals are, this is the starting line. But if you’re a beginner to the whole concept of managing your finances, you may have some trouble grasping this fundamental practice.

You’re not alone though, and in all likelihood, you already practice some kind of budgeting yourself. Let’s take a little deep-dive into this financial practice, so you can get better at it.

What is budgeting?

Budgeting is the art of preparing a budget to manage your personal finances better. A budget is simply a plan for how you aim to spend the money that you earn. It involves sketching out a clear idea of how much of your earnings will be spent on each of your needs, wants and goals.

For example, say you earn Rs. 50,000 per month. And say the first thing you do when you earn your salary is set aside a specific sum — like around Rs. 10,000 — for your monthly groceries. This is a kind of budgeting too, because you have a plan about how to spend your money.

How do you go about creating a personal budget?

For most people, budgeting of some form or the other comes naturally. Nevertheless, it always helps if you have a clear idea of how to create a fully functional budget. The steps outlined below can help you with this.

Step 1: Have a clear idea of your total income

Often, when you think of your income, you may only consider your primary income. Like your salary or your business income. But you also need to factor in any periodic income you earn from your deposits or any other supplementary earnings you may have. Write down your total income from various sources, so you have a clear idea of your earnings.

Step 2: Identify your fixed essential expenses

Some expenses are unavoidable but easy to quantify — like your rental expenses, your insurance premium, internet bills and child’s school fees. These are your essential or non-discretionary spends that are fixed in nature. List out all these expenses, so you have a fair idea of the fixed costs you need to meet each month.

Step 3: Identify your  variable essential expenses

There are some essential expenses that may vary from one month to the next. Some examples of variable yet important spends include fuel costs, your groceries and provisions, your electricity bill and any emergency expenses. These costs cannot be easily quantified, but you can allocate a ballpark figure based on your habits for this category.

Step 4: Figure out your disposable income

Your disposable income is what you have left after you’ve accounted for your fixed as well as your variable expenses. In other words, it is the income that you have absolute discretion over. Most people choose to spend their disposable income on discretionary expenses. These are avoidable expenses that you may indulge in, like the cost of eating out, going to the movies, or buying something on your wishlist.

Step 5: Make a plan to spend less and save more

If you find that your disposable income is not quite high, you can change this situation for the better by cutting out unwanted expenses. Identify areas where you can cut back, and simultaneously make a plan to save a portion of your income each month. You can then align your savings and/or investments with your financial goals.

Top 5 budgeting techniques

While the strategy outlined above can help you make a basic budget for your money, you may want to explore different budgeting strategies. This way, you can switch it up till you figure out what works best for you.

1. A savings-first budget

In this budget, you prioritise your savings over your investments. Your income first goes towards meeting your monthly savings and investments quota, and the rest of the money is used for your expenses.

2. A spending-first budget

This budget focuses on your expenses over your savings. It may be useful if you have a lot of debt that you need to repay, or if you have other unavoidable liabilities. Your income is first used to meet these costs, and surplus funds, if any, are redirected to your savings.

3. A zero-based budget

A zero-based budget is essentially a plan where every penny is accounted for — and is either saved or spent with a purpose. It encourages you to use every rupee to pay off your debts and save up for your financial goals. At the end of the month, your income minus your spends/savings should be zero.

4. A 50-30-20 Budget

This is one of the easiest budgeting techniques for beginners. Here, you spend 50% of your income on your needs (or essential expenses), 30% on your wants (or discretionary expenses) and 20% on your savings and investments.


This should give you the basic framework you need to get started with budgeting. Keep in mind that your budgeting technique need not be set in stone. You can change your strategy till you find the one that fits your requirements perfectly. And as your financial goals and your earnings change with time, your budgeting techniques also need to be aligned and adjusted accordingly.

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