Fin Quest

The budget process is reconciling your financial realities to your financial dreams. The process of creating a budget can be instructive. Creating a budget involves projecting realistic behaviour. Your assumptions may come from your actual past behaviour based on accurate records that you have gathered. If you have been using personal finance software, it has been keeping those records for you; if not, a thorough review of your bank and credit card/ investment statements will reveal that information. Financial statements are useful summaries of the information you need to create a budget.

The Traditional Budget:

This can be a great budgeting technique for people who are detail-oriented and who have more time. It's not so great for people who are "big-picture" thinkers, creative types, and busy people. Examples include paying bills, fetching groceries and food, paying rent, paying the mortgage, insurance premiums, minimum debt repayments etc.

The 50/30/20 Budget:

50% of Needs: Needs are the things which are absolutely required for the survival or must necessarily do to live.

30% of Wants: "Wants" are that money can buy. These are not what needed for basic survival, but something that aspire for. Examples- Occasional dining, movie outings, leisure travel, seasonal shopping, grooming splurges, hobby classes, etc.

20% of Savings: Savings is what will sail through in the future. Examples- Adding money to an emergency fund in a bank savings account, making a mutual fund account, and investing in the stock market.

The 80/20 Budget:

Under this strategy, you simply skim your savings off the top, and then freely spend the rest. Twenty percent is the minimum you should save. You should put at least 10-15 percent away for retirement. You can also modify this into the 70/30 budget, 60/40 budget, or even the 50/50 budget, depending on how aggressively you choose to save.

Multiple Accounts Method:

You open separate bank accounts for your goals and expenses. Examples include open one account for your Holiday Savings, One account for managing all your payments, one account for your long term goals etc. Transfer the amounts regularly and savings account would not be touched until there is an emergency.

Steps to create a Budget:

- Assess your financial resources.
- Determine your expenses.
- Create a list of monthly expenses.
- Make adjustments to expense.
- Cut down spending.
- Review budget monthly.
- Plan for occasional expenses.
- Budgets for emergency fund.
- Review and Track your progress regularly.