Every individual whether he is salaried or self employed, has to plan his financial budget to align his income and expenses. A well-planned financial budget will definitely position the individual to manage his finances a lot more effectively. But how does a person plan his budget? We have attempted to answer this question in this report.

Before planning the budget, each individual should define his objective for saving money and accordingly plan his budget. The objective could be something like buying a house or car, child's education, daughter's wedding. The individual should also know the time period within which he wants to achieve that goal. Lets take the example of an individual X who is married and has two dependents his wife and his 1-year-old child. X is a salaried person and his net take home salary is Rs 22,000 p.m. X wants to purchase a house within 5 years worth Rs 700,000 (Rs 7 lakhs) at the current price level. Let see how much he will have to save per month considering the following points:

Monthly Savings for your property
Property value now	Rs 700,000
Appreciation in the value of property	4%
Assumed inflation	2%
Net returns on savings	10%
Value of property after 5 years	Rs 850,000
Compulsory savings every month	Rs 11,600

After considering the above points X will have to save Rs 11,600 every month to purchase the property after 5 years. X™ will have to plan his monthly budget accordingly so as to save Rs 11,600 every month. Here is how he can work out his monthly budget.

Expenses	Amount (Rs)	(%) of expenses
House rent	2,000	9%
Household	3,000	14%
Travelling	1,000	5%
Bills	1,400	6%
Medical expenses	400	2%
Insurance premiums	1,000	5%
Entertainment&Others	800	4%
Kids expenses	800	4%
Net savings	11,600	53%
Total	22,000	100%

X has only one source of income i.e. his net salary of Rs 22,000 p.m. His monthly budget has been prepared considering his dependents and his objective. Expenses should always be divided in compulsory expenses, notional and variable expenses.

• Compulsory expenses:
  Expenses, which occur every month, are considered as compulsory expense like house rent, household expenses (grocery), traveling (train, auto rickshaw or taxi), bills (electricity, water and telephone) and insurance premiums which may be paid quarterly or annually but should be considered in the monthly budget and provided accordingly.
   

• Notional expenses:
  These are the expenses, which are not compulsory but should be provided for sudden requirement e.g. medical expense. It may not be required every month but should be set aside every month as a measure of prudent financial management.
   

• Variable expenses:
  These expenses include kids expenses (kid's wear and medicines), entertainment expense like movie or meals out and clothing. These expenses vary on a month-to-month basis, but a fixed amount should be saved every month.

If X follows the guidelines outlined above with focus and discipline, he will definitely be in a much better position to purchase the property after 5 years. Likewise, other individuals with different income/expense profiles should have their objectives in front of them and plan a monthly budget. In some cases making a weekly budget is also a good idea.

If you want to track you monthly budget open a MyPlanner account with personalfn.com.

 

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