Here is an easy way to create a budget for your salary. This is easy to comprehend, follow and keep a track of. Just take a notepad, jot down the calculations and you are on your way to a relaxed monthly budget calculation that takes care of all your needs.
Just remember: Budgeting is a simple task. Following it is the tough part.
Easy way to create a budget for your salary
- Determine your In-Hand Pay
What you get in your hand at the end of the month is you ‘In Hand’ pay. It is different from your Gross Pay which is written on your offer letter. Gross pay has components of taxes, insurances, HRAs etc. The amount that gets credited to your bank account after all these deductions is your net income or ‘in-hand’ pay.
- Clearly state your expenditures
This is an important step in budgeting your salary. Take an in-depth dive into your expenses and note them in monthly and yearly grids. Organize them into necessities, bills, savings, investments, leisure etc.
- Keep aside 20% for savings and investments
This is priority. Focus 20% of your salary on investments and savings. Investments are of various types: monthly, yearly, short term and long term. Set aside this percentage of your salary for investments and savings. This important component of your savings will help you post retirement, for marriages in your family, future education of your family and so many other important needs in the future.
- Keep 50% of your income for needs, monthly & miscellaneous expenses
Always restrict your this section of expenses to 50% of your income. There are must do expenses like housing, grocery, electricity bills, school fees, car payments etc that one cannot escape. Keep a tab on these expenses and make sure these are covered while budgeting your salary. Also keep a certain amount for miscellaneous or sudden expenses that just unexpectedly come up.
- Keep 30% of your income for your WANTS
Yes, our wants our important too. No need to kill yourself over and over by curbing these needs. Keep 30% of your income for your wants. Develop a financial discipline to budget this section and give in to cravings. NO way over do it. Stay within the budget and enjoy your life.
P.S: This information is pretty generic. I use this formula to arrive at my monthly budgeting and it really helps. Sometimes I digress but overall my monthly maths is pretty sorted. I also read reputable online financial resources to keep myself abreast with the latest. Please exercise your discretion while budgeting your salary. I also speak to my friends to seek their advice on how to best make use of my money. And of course as Warren Buffet said, “You should not save what is left after spending but spend what is left after saving.” I swear by this mantra and suggest you follow it too.
If you have a tip or two too, do write to me in the comments below. I’d love to hear them.
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