Here are some of the common questions you might have about creating and managing a budget:
Q1. What is budget, and how should I prepare it?
A budget is an overall estimate of your total spending versus your total income. It is easy to prepare a budget. You can either note down all your expenses in a notepad or maintain an excel file. At the end of the month, you can have a look at it to understand your spending and saving patterns.
Watch Budget: Your means to achieve the dream lifestyle to understand why budgeting is important.
Q2. How does budgeting help me?
Budgeting allows you to track your expenses and identify unnecessary spending you can cut down on so you can save more money.
Q3. Will budgeting help me create an emergency fund?
Yes. Once you identify your extra spending, you can cut down on them and redirect it towards an emergency fund instead, which can help you in times of unforeseen events like job loss or a health emergency.
Q4. How do I budget for one-time expenses?
Most household expenses can be easily accounted for every month because the amount is fixed- including car payments, groceries, rent or mortgage payments. But for those bills you don’t have to pay every month; you need to account for them differently. Make a list of such expenses and estimate how much money you would spend on each. These could be expenses for holidays, birthdays, anniversaries, or even eye doctor and dentist visits.
However, you could face an emergency expense that you haven’t prepared for. For such an instance, it’s best to have an "emergency fund". Make sure you set aside three to six months of your income to cover these expenses.
Q5. Does making a budget cost anything?
No. There are many free or low-cost apps that can help you track your budget. You can also maintain your own excel sheet or write in a journal for the same.
Q6. How much should I budget for credit card debts?
Start with the minimum amount due every month, but don’t make this a habit. If you only pay the minimum amount, the remaining amount will pile up and cause problems later. Once you have all your expenses listed, make adjustments every month to see where you can cut down on your expenses and pay off more of your credit card dues. Remember – missing a payment should not be an option, because if you are not able to pay your debts, your credit rating will be affected. This will make loans even more expensive for you in the future because you will be charged higher interest or may be denied loans altogether.
Q7. If I contribute 10% of my income to the Employee Provident Fund, why should I also save some more amount towards an emergency fund?
Money put aside in the PF contribution cannot be used before you leave the organization or unless you have some emergencies and will take some time for you to access. Hence, it is advisable for you to have some amount in a separate emergency fund that you can access at any time, that you have full control over.
Q8. I have been working for almost five years, but I do not have any savings. How do I manage this situation?
This is a common issue with most of us- we spend our money on aspirational items that we want in the present, rather than focusing on saving for the future. When the future arrives, we find it tough to save because our lifestyle has become expensive. Try not to spend money on things that you don’t actually need or want- instead, focus on meeting your financial requirements first. If you make the future a priority, you will find ways to reduce eating out, spend less fuel, save electricity, and pay your bills before the due date to avoid penalties. Making these simple changes, along with following a budget, can help you stay cash positive at the end of the month. Remember – a budget is not meant to curb your spending, it’s meant to control it, so you can spend, guilt free.
Watch How to create a budget that suits you for creative budgeting tips.
Q9. How many credit cards should I have?
Having an assortment of cards could strengthen your credit score, but it depends on how well you are able to manage these cards. For instance, if you already have three or four credit cards that you are struggling to pay for, then do not get another one. If you have done well with the cards you have and are looking for one with better rewards, then you can look at getting a new one. Make sure that you keep the credit cards that you’ve had the longest, especially if your history with that card is positive — your credit score will take a hit if you don’t
Bottom line: Only have as many credit cards as you can manage to pay for without defaulting.
Q10. What if I have been able to save money without making a budget? Do I still have to create one?
Yes. Even if you are able to save money currently, it’s important that you create and follow a budget so that your long term, future goals can become a reality. Doing this will help you save even more money in a systematic way and most importantly, plan for emergencies, or when things don’t go according to plan.
Q11. Can I forecast my spending if I start preparing a budget?
Yes, if you have been making a budget sheet for a few months, it is highly likely that you will be able to understand your spending behaviour. This will help you forecast or predict how much money you will spend in the upcoming months.