Why and How to Make a Budget? Important reasons and tips

  • Published on: 14 Mar 2024
Why and How to Make a Budget? Important reasons and tips

Knowing how to make a budget is one of the essential life skills that can help you manage your finances. Budgeting allows you to effectively spend your income to meet all your needs. Moreover, a proper budget helps cut unnecessary costs and save more to secure your financial future. 

Read on to learn why budgeting is important, how to make a customised budget and tips for smart budgeting. 

5 Top Reasons to Have a Budget 

Here are some reasons why you should have a budget in place: 

  1. Ensure You Spend Within Your Income

It allows you to differentiate between necessary and luxury expenses, which is crucial. This information can help you limit expenses and make sure that you don’t spend beyond your income. 

  1. Save For Retirement 

It helps determine exactly how much you can put towards your retirement fund. By investing that amount smartly, you can secure your golden years with a suitable corpus.

  1. Achieve Your Goals

It provides insight into whether you have any surplus money to put towards long- and short-term goals. You can also understand how much you can direct towards creating a fund for emergencies.  

  1. Avoid Bad Spending Habits 

You can review your budget to know if your money is going towards too many luxury or impulse purchases. After rethinking your spending habits, you can put the money towards instruments that secure your financial growth. 

  1. Improve Financial Health

Budgets offer perspective, and this can help you take better control over your money. In fact, it can improve your lifestyle in the long run by enabling you to:

  • Build a substantial contingency fund 
  • Prepare for significant future expenses such as children’s education, weddings, etc. 
  • Secure financial growth

Also Read: Budget Planning: How to Create a Monthly Budget

Steps to Create a Good Budget?

If you’ve ever wondered, ‘How do I make a budget?’ then follow these guidelines:

Step 1: Calculate Your Net Income

Firstly, know your total monthly earnings from all sources, including: 

  • Salary 
  • Investment returns
  • Rental earnings, etc. 

Step 2: Calculate Your Monthly Expenses

Knowing how much you spend is a crucial aspect of an effective budget. This is because it will help determine if you have room for savings or are exhausting your income. 

Step 3: Track Your Spending

After you’ve calculated your inflow and outflow, you must check if you’re making any unnecessary purchases. Ideally, you should monitor your income and expenses for a few months to get a better overview of your spending habits.

Step 4: Choose a Budgeting Method 

Once you have analysed everything, you must decide on an approach. A popular tactic is the 50/30/20 method, where:

  • 50% goes towards necessities
  • 30% goes towards wants
  • 20% goes towards savings

However, you can decide on any ratio or method based on your financial obligations. 

Step 5: Make Adjustments to Stick to Your Budget

After doing all the required calculations, you can adjust your expenses based on your lifestyle. Note that it’s important to keep your budget flexible as an overly strict plan may diminish your quality of life or make it hard to stay consistent. 

Also Read: Tips To Do Budgeting With A Variable Income

Tips to Stick to Your Budget

Here are some practical tips to help you meet your goals:

  • Make your budget before the month starts so you can get started as early as possible 
  • Include family members to get a clear picture of all the expenses and spends
  • Prioritise debt payment over luxury, big-ticket purchases
  • Avoid making impulse purchases
  • Use online budgeting apps to make the process easier
  • Opt for auto-pay to avoid delays and additional burden of late payment charges
  • Keep track of your progress and adjust the budget periodically
  • Limit the use of credit cards to keep your expenses manageable
  • If possible, repay your high-interest loans first to save more 

With these tips, it’s easy to create an effective budget to meet your goals and save more money for the future. However, there may be a situation when you may need urgent funds and you may not have sufficient cash. In such cases, the Fibe Instant Personal Loan can help.

You can easily get a loan of up to ₹5 lacs for any and all financial requirements. Furthermore, with flexible tenure of up to 36 months, you can repay comfortably, per your budget. Download our Personal Loan App or visit our website to apply online! 

FAQs on Why and How to Make a Budget

Do you really need a budget?

Yes. Having a budget gives you clarity on your money management skills. It simplifies your money management and allows for realistic adjustments. Thus, you must have a budget to get better control of your earnings and day-to-day expenses. 

What are the purposes of budgeting?

A budget can help you better manage your income and spending in the following ways:

  • Avoid unnecessary purchases 
  • Pay bills on time and in full
  • Save for your retirement 
  • Invest for your goals
  • Create a fund for emergencies

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