No matter how poor you are or how much poor you think you are your dreams will be big, and you always want to achieve your Dreams. But at some point of time you feel it’s not achievable and you get satisfied with whatever you can get isn't it.
Hmm that's true
But if you are determined you can always achieve it. This will never be an immediate process.
Obviously for financial independence you need money and to earn money is never an easy process. But on the contrary spending money is simple and you actually never know how you spent the money.
Now when I said your dreams are big, it means you already have a goal. So the next step is to achieve that goal. Let’s see how you can do this. In order to achieve this, the first thing is to know where you stand.
And when it is with regards to finances it’s called budgeting.
Why should you set up budget?
Nice question, this is something like “Why do every nation have a finance budget in every financial year?”
The benefits of budgeting are:
- You know your savings
- You can plan for your retirement
- You can plan for your car/new house/real estate/education/holiday trips/luxury etc
- You can avoid debts
- You will be able to handle unexpected expense requirements
- Improved credit score ratings
- Improve your standard of living
Let’s start with budgeting
What do you need to set up your budget?
- House expenses
- Food expense
- Utility cost
- Travelling cost
- Medical and insurance expenses
- And all other expense
This helps to know what are your basic expense or better to say basic necessities and how much can you save from your income.
Once this is done you know where you stand.
First advantage from doing this is you realise where you are wasting money if at all. This helps the most when you need to start cost cutting.
Second by doing this you can predict the future projections from where you stand.
This is where you know from which all directions you can get money and where all you can save money.
Setting up your budget
- Categorize your expenses based on what you found as mentioned above
- Set funds for each category. No need for contingency here.
If you keep any kind of contingency plan here, you will end up spending that amount at the end. So it’s better not to keep any contingency.
- Generate the savings projection.
This is nothing but savings = income – expenses. Since your income is stable and your expenses you are already aware hence you can say you know how much you can save.
- Split the savings amount into contingency plan and investment projects
Investment projects is where you invest be it fixed or recurring deposits/mutual fund/shares/futures/gold etc
Since we did not set up any contingency in setting funds for regular expenses, we need to keep it here for unexpected expense or emergency situations. Note here the contingency is part of saving and if found not utilized this amount should be part of next month’s part of investment projects.
Thus investment projects should keep on piling up in each income period.
Investing for returns
Each penny which you save should be invested to have future returns
- Term deposit (FD or RD in a bank)
- Mutual funds
- Real estate
You should invest your savings to achieve guaranteed returns.
Life will never be as you plan. There will always be ups and downs and you need to be ready for it.
Having a proper savings plan can help overcome the unexpected financial needs.
Once the issue is resolve you need to bring the finances also back on track.
To do so you will need to revisit the budget identify areas where you can do effective cost cutting.
Frequent revisit of budget also helps in improving your savings projection and hence the total savings.
Keep yourself motivated
Saving is always a difficult task hence you tend to go off track. To avoid this you need to keep yourselves motivated To do so you should be confident of your budget.
Also remember your confidence will definitely start boosting once you start receiving the returns so be patient till and be focused because soon your returns are going to show up and start working for you.
As said in order to shine you need to burn first.