Monthly budget planning is the foundation of financial stability. Additionally, it provides a genuine opportunity to save money for achieving your dreams. To get started and avoid feeling overwhelmed by a flood of numbers, expert and speaker on corporate and personal finance, Elena Shepel, shares her insights.
Before diving into financial budget planning, it is essential to collect comprehensive information about your monthly income and expenses. In simple terms, this involves gathering actual data that you will need to analyze.
"Record all sources of income for the month. This includes not only your salary or any profit from your activities but also cashback, subsidies, gifts, and gift certificates. The next step is to calculate your monthly expenses. To make it easier, you can use various mobile apps, banking services, or a simple Excel spreadsheet. Categorize your expenses into different groups—housing, transportation, healthcare, groceries—and estimate what percentage of the total amount is spent in each category. Then, divide all expense categories into mandatory and discretionary. Mandatory expenses include rent, utility bills, food, transportation, and loan repayments. Discretionary expenses encompass entertainment, app subscriptions on your smartphone or Smart TV, shopping, and impulse purchases," recommends Elena Shepel.
Once all expenses are categorized into primary and secondary, you can define the limits for each category and start planning the budget for the upcoming month.
"Distribute your expenses in the ratio of 50, 40, and 10. If you have loans or debts, the ideal ratio is 50, 30, and 20. Here, 50 percent of expenses should be mandatory payments that must be made every month. 30 or 40 percent are desired but non-essential expenses. Lastly, 10 or 20 percent should be savings, contributing to an emergency fund and debt repayment (at least 10 percent of your monthly budget should go towards covering debts). If you struggle with discipline, make the monthly saving of 10% automatic. Set a rule in your banking app where 10% of each deposit to your card is immediately transferred to a separate account. You can apply the same formula when exchanging currency: 10% of the withdrawn amount automatically goes to your savings account. The main goal is to automate part of these savings and create a reserve fund," explains Elena Shepel.
Planning a budget is only half the job. It is crucial to track all your expenses throughout the month to see if the planned figures align with the actual ones. If you did not manage to stick to the budget, the precise data will help identify where the deviation occurred. After that, you can adjust the budget for the following month.
"Financial planning is like a muscle that needs to be exercised regularly. Few people manage to plan perfectly from the start. Be prepared for noticeable deviations between the plan and reality during the first three months of planning. Take it easy. Gradually, financial planning will become more accurate, and any deviations will minimize," reassures Elena Shepel.
Once you have sorted out your monthly budget planning, you can set financial goals and start saving money. For this, you will need to reorganize your monthly financial plan. Of course, everything will depend on your income level. If covering basic needs requires less than half of your income in your monthly budget, feel free to plan important purchases.
"Depending on the timeframe in which you wish to achieve your financial goals, they can be divided into three categories. Short-term goals require one to two months to achieve. Medium-term goals may take up to 12 months to realize. Long-term goals are those that require more than a year. It is important to note that planning is a very individual process. The path to achieving goals depends on a person's income, which can change for better or worse," says Elena Shepel.
There are several schemes for annual planning used to achieve long-term financial goals. For example, if you need to buy a car.
"The first step is to quantify your financial goal. Find out how much the car costs. Divide its price by the amount you can realistically set aside each month. Calculate how many months you will need to save up to buy the car, or you can work backward. Divide the car's price by the number of months you want to save. This way, you will know how much money you need to save each month. If you want to shorten the saving period, cut back on some discretionary expenses and impulse purchases. By reducing expenditures in other categories, you can achieve your goal several months earlier. It is essential to start planning your budget and saving right now. You can save even with a minimal income. The key is to do it regularly. After a year, the accumulated amount may pleasantly surprise you," concludes Elena Shepel.
Previously, "Telegraph" reported on the habits that even billionaires give up. Wealthy individuals were once poor too.