4 personal budgeting strategies for better financial future
Budget planning is a fundamental skill everyone must know to manage their finances better. However, assembling an effective budgeting strategy requires practice. When making a personal budget, there are many things to consider, such as your expenses, financial goals, emergencies and so on.
Further, with an effective personal budgeting strategy, you can consider taking credit to finance your big purchases. You can find quick finance with many options, like personal loans, peer-to-peer lending, credit cards, and so on. With a custom-made personal budget, managing and availing such credit plans is simple.
Personal budgeting includes planning expenses, managing debt and repayment, and investing in suitable options. This requires strategies that work for your current finances while helping you build a better financial future.
Read on to know some of the best strategies you can implement for effective budgeting.
Plan your monthly finance using 50/30/20 rule
The first step to budget planning is to manage your outflow, which you can do by using the 50/30/20 rule of budget planning. As per this rule, you must divide your monthly income into a set ratio of 50:30:20 to cover existing expenses.
The 50/30/20 breakdown is simple, as it suggests splitting the net income into a three-part ratio.
- 50% of the total amount is dedicated to cover your essential expenses. These include bills, groceries, EMIs and any other financial requirements.
- 30% of income is set aside for luxuries. This includes movies, shopping, dining etc.
- 20% of the income is set aside as savings or for investment purposes.
Here, using the 20%, you can start an emergency fund with a savings account, so you have emergency cash when required.
However, you must set a target amount for your savings account. Once you have reached the threshold limit, you can redirect the 20% income into investments, such as MFs, stocks, FDs, Bonds, EFTs, and so on.
Additionally, your budgeting split can help you decide when you need external financing like a personal loan. Apply for such offerings only when you expect to overshoot your budget with a large expense.
Opt for Credit Payment Provisions
If you have loans or any form of outstanding credit, you should tailor your budget to prioritise payment. Repaying outstanding credit on time is key, and failing to do so will attract penalties. These include additional charges such as late payment penalties, and penal interest. Thankfully, a helpful strategy to avoid this is to check for payment provision offered by service providers.
Be it your lender or any other fintech solution, you can now find provisions that help you prioritise repayment. Here, you generally have a few options, with some allowing you to pay the minimum dues owed, or the entire amount due, before the last date.
Whatever you choose, these provisions can help you steer clear of late payment penalties associated with credit like peer-to-peer lending or a personal loan. Apply for a payment provision that suits your financial capabilities, as these penalties can easily drain your savings in the long term.
Keep in mind that such auto-debit may have certain terms applicable too. For instance, not maintaining the sufficient balance will cause you to pay a bounce charge, which is over and above other penalties applicable.
Consider debt consolidation to streamline your credit
Having multiple EMIs and instalment payments will add to the financial burden. For better management, you can reduce your credit liability by opting to consolidate your debt. This is among the many ways to handle credit and budget for it appropriately.
This is often recommended for those who have multiple active credit accounts, and have several billing cycles to pay attention to. In such cases, it is easy to miss payments or even overshoot your budget in a particularly difficult month.
Thankfully, debt consolidation is a smart way to optimise your outgo and budget efficiently. By availing a new loan to consolidate all your other debt, budgeting becomes simpler. You now have just one payment to account and this makes things easier.
Also, you can easily apply for a personal loan for debt consolidation from any bank or NBFC. You may even find peer-to-peer lending solutions for debt consolidation, and this is a good way to maintain your financial well-being.
Set realistic short and long term goal
Budgeting requires you to plan ahead, and this means setting short- and long-term personal finance goals. These not only adjust and control your spending, but also divert funds wisely. So, whatever the undertaking, have a realistic goal in place.
For instance, if you intend to avail a 5-year loan with an affordable tenure, consider planning for a partial-prepayment. Budget for it, and approach it in a realistic manner. This can mean putting aside a portion of your savings for prepayment, or investing for the goal. Whatever the vehicle, work towards your financial well-being in a practical way.
Personal budgeting requires you to think of the best ways to leverage your money and enjoy the quality of life you want.
Using these strategies as an outline, you can perfect your personal budgeting efforts and ensure that they will help you secure your finances. Be sure to utilise these whenever you draft up a budget or before you take on a massive financial undertaking.
In fact, you should revisit your budget whenever you take on new credit or get a personal loan. Apply only if you can afford the payment comfortably. Repayment is an essential expense, and you must be able to handle it without disrupting your other obligations. Only through budgeting can you achieve this realistically, and this helps ensure your financial well-being throughout.
