Though maintaining an expense sheet and budgeting looks mundane, it is a very critical step in personal money management and can help reduce worries in an uncertain economic scenario.
The main objectives of maintaining a budget sheet is to track and control the day to day expenses, to provide and prepare for the priority needs and to create financial backups to counter any unforeseen needs. Ideally one should do this exercise for at least 6 months if not more which will definitely give a lot of food for thought.
The budgeting process has two main steps. First, preparation and maintenance of an expense sheet, and second, deriving a cash-flow statement. The simplest way to do this is to create a template on Excel and regularly update the same.
Steps to create a budget sheet
Define the basic heads of expense and list all the expenses under each head
Committed expenses: Includes expenses, which are a must and are recurring in nature. Rentals, groceries, school fees, telephones, fuel, vehicle servicing, etc.
EMIs: Sum of all the EMIs including any credit card payments.
Personal expenses: Are expenses which are personal in nature like clothing, cosmetics, toys, grooming etc. These are expenses which are mostly variable and can be controlled to some extent.
Contributions to dependents: Would include financial support to elderly parents and less fortunate relatives, etc.
Saving expenses : Includes payments made towards insurance premiums, mutual fund SIPs, RDs, post office savings etc
Luxury expenses: These are spending to maintain one’s lifestyle. Includes expenses which are not a must and can be done without. For eg: Restaurants, clubs, vacations, hosting parties, purchase of gadgets etc. 2. Assign frequency for each expense: The frequencies can be monthly, quarterly, half yearly and yearly. The idea of this would be to be prepared for all non monthly expenses which could be very worrisome if not planned for.
With the budget sheet ready, the next step is to create a cash-flow statement which will give us the break-up of income v/s expense — frequency wise and tell us exactly the surpluses which can be channelised into the investment portfolio.
Sample cash-flow statement
In the chart below you can see the break up of the income v/s expenditure. Though the monthly surplus reflects as Rs 12,000, the actual surplus taking into consideration the quarterly, half yearly and yearly expenses is Rs 8200.
The main objectives of maintaining a budget sheet is to track and control the day to day expenses, to provide and prepare for the priority needs and to create financial backups to counter any unforeseen needs. Ideally one should do this exercise for at least 6 months if not more which will definitely give a lot of food for thought.
The budgeting process has two main steps. First, preparation and maintenance of an expense sheet, and second, deriving a cash-flow statement. The simplest way to do this is to create a template on Excel and regularly update the same.
Steps to create a budget sheet
Define the basic heads of expense and list all the expenses under each head
Committed expenses: Includes expenses, which are a must and are recurring in nature. Rentals, groceries, school fees, telephones, fuel, vehicle servicing, etc.
EMIs: Sum of all the EMIs including any credit card payments.
Personal expenses: Are expenses which are personal in nature like clothing, cosmetics, toys, grooming etc. These are expenses which are mostly variable and can be controlled to some extent.
Contributions to dependents: Would include financial support to elderly parents and less fortunate relatives, etc.
Saving expenses : Includes payments made towards insurance premiums, mutual fund SIPs, RDs, post office savings etc
Luxury expenses: These are spending to maintain one’s lifestyle. Includes expenses which are not a must and can be done without. For eg: Restaurants, clubs, vacations, hosting parties, purchase of gadgets etc. 2. Assign frequency for each expense: The frequencies can be monthly, quarterly, half yearly and yearly. The idea of this would be to be prepared for all non monthly expenses which could be very worrisome if not planned for.
With the budget sheet ready, the next step is to create a cash-flow statement which will give us the break-up of income v/s expense — frequency wise and tell us exactly the surpluses which can be channelised into the investment portfolio.
Sample cash-flow statement
In the chart below you can see the break up of the income v/s expenditure. Though the monthly surplus reflects as Rs 12,000, the actual surplus taking into consideration the quarterly, half yearly and yearly expenses is Rs 8200.
