Many of you might find it difficult to resist the temptation to overspend money and save for the future. But planning for future goals and retirement must be your priority while earning. This is where budgeting comes into the picture. It is an essential strategy to bring discipline in spending and achieve financial goals. From the government to businesses and households, budgeting helps all to remain financially strong. So, find out what budgeting is and how it helps in investment planning.
What is Budgeting, and Why is it Important in Investment Planning?
Many individuals consider budgeting a difficult and tedious task that requires specific skills. But it is a simple process that can help you achieve your dreams on time.
The process of managing your income and expenses weekly or monthly is known as budgeting. It is a personal finance plan that allows you to allocate resources to different expenses such as utilities, clothing, healthcare, savings, investment options, insurance, etc.
Budgeting helps determine the amount of money you can save for financial goals and is the first step to making your dreams a reality. It involves investment strategies to multiply wealth, achieve financial targets and plan for retirement. Moreover, budgeting can help avoid debts or pay them off if you have any.
Following are the reasons why budgeting is important in investment planning and the reasons you should start budgeting today:
Helps you spend money wisely
Budgeting is a perfect tool if you spend your money on unnecessary items. It is because budgeting makes you aware of how much money you are spending and where you are spending it. Not only this, a good budget helps you save for unfortunate times and fulfil your responsibilities without the need to opt for debt.
Provides control over your money
Budgeting gives you control over your money by providing a clear picture of savings and spending. It allows you to track your expenses and savings while allocating your income to different buckets according to priorities. Also, by having strong control over money, you can do investment planning in a better way.
Allows you to achieve financial goals on time
A good budgeting strategy makes saving easy, which you may find difficult in the absence of a proper track of your income and expenses. By saving money regularly, you can achieve your financial goals, such as buying your dream house, buying a car or planning for retirement.
Personal Budgeting Tips
Creating a well-defined personal financial budget allows you to accomplish your dreams smoothly. So, if you find it hard to manage your income and expenses and tend to overspend, here are the tips for budgeting:
Decide what to use while making a budget
The first thing to consider while starting with a budget is determining where to prepare it. You can either use a spreadsheet or a diary to create your budget. Ensure you have easy access to your budget so that you can make necessary changes to it when needed.
Calculate your total monthly income
To make an effective budget, you must calculate your total monthly income, which may include your spouse’s income, rental income or other. A clear picture of your total income allows you to spend and save accordingly.
Collect all financial documents
While making a budget, you must collect all your financial documents, such as bills, bank statements, fee slips, etc., to gain clarity on your expenses. With this, you can gather all expense details in one place and create your budget easily.
Enlist your monthly expenses and divide them into fixed and variable
Once you evaluate your monthly income, you must now enlist your monthly expenses. You can start with the larger expenses like loan repayments, rent and others and then include other expenses like clothing, entertainment, utility bills, etc. Further, divide your expenses into fixed and variable. Fixed expenses remain the same each month and may include money investment plans, loan payments, rent, utility bills, etc. But variable expenses might change each month, such as entertainment, clothing, health, etc.
Eliminate irrelevant expenses if needed
Budgeting not only involves chalking out income and expenses but also managing them. So, you should evaluate your variable expenses and eliminate the irrelevant ones. This would allow you to save more money or keep it aside for an investment plan.
Budget and Investment Planning
A budget involves not only savings but also a strategic investment plan that makes your money grow with time. So, investment planning is an essential part of budgeting that includes evaluating your financial goals and risk appetite. Based on your goals and risk tolerance, you can opt for the best investment plan in India for the middle class, such as fixed deposits, mutual funds, ULIP plan, Sovereign Gold Bond scheme, etc. But while choosing money investment plans, you must learn about the investment options available to make an informed decision.
Managing your income without a budget can make it difficult to achieve your goals. But preparing a realistic budget allows you to forecast your spending and aid you in long-term financial planning. It inculcates discipline and acts as a saviour when income fluctuates or is lost. Moreover, a budget helps identify irrelevant or wasteful expenses that you can eliminate to increase savings or investments.