How to start the personal budgeting with your first job?

By embarking on a career, we hope to achieve financial freedom for the present. With good planning, you can also secure your future, which includes a savings plan for your post-retirement life. When it comes to financial planning, the goal of any young professional should be to build wealth and secure their long-term future. However, this is a long-term project, so the sooner you start saving and investing, the smoother the journey becomes.

As a new worker, you may feel that your newfound cash is yours to spend and that any financial plan can wait. However, the importance of a monthly budget cannot be overstated, even early in one’s career. In fact, most Indian households follow some form of budget planning. If you don’t follow a budget, you will have no idea where your money is going, and in the long run, it will affect your financial goals.

So, start financial planning with a budget – today.

Add up all your income

First and foremost, take stock of the funds flowing into your savings account. You need to base your budget on your in-hand salary after tax and provident fund deductions. Also, consider any additional income that you earn during the month. It could be rental income from house property, interest income from deposits, profits from business shareholdings, etc. When you know exactly how much you earn in a month, managing your expenses and savings plan becomes easier.

Identify your financial goals

Don’t confuse post-retirement financial security with other financial goals. It is an important goal but not the only one.

Financial goals can be short, medium, or long-term. Your immediate financial goal may be to settle credit card dues or a student loan. In a few years, you may wish to travel abroad on vacation or plan to start a new business. Buying a home is a perennial financial aspiration for most households. There will be long-term goals such as a family wedding or your children’s education. You will also need to build an emergency fund in your bank account and plan for your post-retirement income. All of these are essential financial goals that you need to consider. 

Decide how much to save 

Depending on your financial goals, you must calculate how much you need to save. Identify your investment vehicles, consider their growth and return rate, and accordingly arrive at the amount you would need to save today. For instance, let us assume you are investing in a mutual fund with a 12% annual return. If you want to accumulate Rs 1 crore in 20 years, you will need to invest Rs 10,000 per month. At a 6% return rate, your monthly savings need to be nearly Rs 22,000 to accumulate the said Rs 1 crore in 20 years. You can use online return calculators to find accumulations for various investment options. 

Determine your budget

As Warren Buffett always said, do not save what is left after spending, but spend what is left after saving. You should set aside the amounts you plan to save and invest in your income. This is the same amount you calculated while estimating your investment growth and return. Your income as deducted after savings and investments is your true disposable income. Please note that your savings should be proportionate to your income. An overambitious savings target can strain your monthly household budget and lead to substantial debts in credit cards and short-term loans.

Identify irregular expenses

Much like life, your household expenses can be unpredictable. Yes, there would be a few staples such as rent, groceries, utility bills, etc. But there will be an unexpected expense too, which pops up once in a while. You can pre-empt irregular expenses like insurance premiums, taxes, seasonal shopping, annual school fees, etc., and earmark them in advance in your budget. This way, you will have allocated funds to handle these expenses, and your monthly budget will not get affected.

Check on spending habits

Once you follow your monthly budget and compare the actual spending for a few months, you will spot if there are any anomalies. By ‘anomalies’, we mean the expenses you could have avoided. We often splurge on things that we regret almost immediately. Then there are small avoidable expenses that add up to a considerable amount when incurred regularly. With a budget, you can identify such expenses and put a check on them in the future.

Decide your type of budget

There are various ways you can carry out this budgeting exercise. A zero-based budget follows the simple rule – you should add expenses and savings to match the income amount. The envelope budgeting system requires you to allocate money for different expense categories to different envelopes. Simpler still is the 50/30/20 budgeting rule. Here, you allocate 50% of your income to necessary expenses, 30% to discretionary expenses, and 20% to savings. It may seem rigid for some if they have low discretionary expenses or high interest debt repayments. So, you may customise the percentages to fit your expense and savings pattern. But once you choose a budget type, it is essential to stick to it zealously.

Use technology to make it work

Technology can be a big assistance in budget planning and monitoring. You can use budgeting apps that allow you to categorise expenses, set expense limits, send you notifications and payment reminders, and much more. With modern netbanking apps such as the IDFC FIRST Bank mobile banking app, you can monitor many of your financial activities. Information like your card usage, fixed and recurring deposits, bill payments, and home and other loan-related transactions are all available on your IDFC FIRST Bank mobile app. Modern banking technology offers information at your fingertips, making budgeting much easier.

To sum it up

Saving money becomes easier and more streamlined when you adopt the budgeting process as a part of your life. You don’t need to let your budget restrict your lifestyle. It should allow you room to spend on luxuries once in a while – much like diet plans that allow you a weekly ‘cheat day’. After all, as a newly employed professional, you will be tempted to spend on luxuries and gadgets. But your quiet resolve to adhere to a budget and an early start to saving will bring you rich rewards in the long run. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.