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Budgeting Guide for Young Indians

By the Paise Sherpa

Managing our finances is a challenging task to get the right balance between our income and expenses and keep some money for savings and investments. Whether you're living in a bustling city or a small town, it can be hard to figure out where your money is going, how to save, and how to invest. Some of us are stuck in a habit of overspending, failing to keep track our expenses, and then getting stuck in debt or feeling anxious about our future. 

Is there was a way to take control of your personal finances? Budgeting is a good way to start. This budgeting guide will break down important concepts like creating a budget, tracking expenses, saving money effectively. 

Understanding the Basics of Financial Planning

Financial literacy is very low in India. However, our lifestyle spends are on the rise due to a more digitally connected youth, higher disposable incomes and reducing saving mindset, targeted marketing and changing consumer habits and preferences (like BNPL - buy now pay later, premiumization, etc etc). Also there is a shift in viewing debt as a useful enabler rather than a troublesome liability which was what earlier generations thought of loans or credit cards. (to know more read my article - 5 reasons you are broke) With this background basic knowledge of important financial concepts is crucial to understand how to effectively manage your cashflows so that you are in good financial health.

Creating a monthly budget is a simple yet powerful first step to take control of your finances. Budgeting gives a clear visualization of the cash flows and the outlays that can be assigned for discretionary spends which helps curb impulsive purchases and consequently ensures that you're spending wisely and saving consistently.

Practical Household Budgeting Tips

We all have struggled with managing household expenses at some point in life. Rent, groceries, utilities, and daily expenses, it can be difficult to stay on top of everything while at the same time maintaining your lifestyle.

One of the household budgeting tips is allocation of income - you can divide your income into different buckets - monthly fixed expenses and variable costs. This will give you a clear view of what’s essential and what can be adjusted.

One of the best tools for this is following the 50-30-20 Rule. This simple budgeting rule of thumb:

50% for Needs: Needs are the essential expenses like rent, WIFI, utilities, groceries, transportation, etc. These are the fixed expenses that you will incur every month.

30% for Wants: Wants are non-essential but desirable expenses such as dining out, entertainment, shopping, and leisure activities. These are variable and can be adjusted (you don't need to buy clothes every month).

20% for Savings and Debt Repayment: Setting aside at least 20% of your income for savings, investments, and paying off any existing debt, EMIs. Ideally this should also be a fixed part of your income allocation. You must set aside some amount for your future financial goals. 

Tip: Prioritize the needs, debt payments, savings and investments. In fact, it is fine occasionally to allocate more to your investments and control your non-essential wants but not the other way round!

Why Expense Tracking is Essential for Financial Planning

Do you feel extremely happy when you see the salary credit to your account. Now you are free to go out and spend - shop, watch a movie, get the latest phone which was just launched. You are not alone if you do! Do you also struggle to manage your finances towards the end of the month? Again you are one amongst many who face the same issue. One of the reasons for this is not keeping track of expenses.

Expense tracking might seem a chore, but it’s essential for long-term financial success. It helps you stay accountable and organized. It helps understanding spending patterns, possible areas for cutting back so that you can divert some amount of money towards savings and investments.

Tip: Use an app (there are many useful apps available for tracking and analysing expenses), a spreadsheet, or even a simple diary to record your expenses. UPI also makes it very easy to track spends. Next, distribute the expenses in buckets mentioned above - needs, wants and savings. Finally, analyze and make corrections if needed.

How to Save Money Effectively

Saving money is a difficult task with the rising cost of living, family responsibilities. But it is a crucial necessity.

It is possible to save money effectively with discipline and planning. Record your expenses, analyze and classify the expenses and cut back on unnecessary expenses so that you have some left over for savings and investments. 

Final Thoughts

Managing finances cab be a challenge. By creating a budget, tracking your expenses, changing spending habits, and prioritizing savings, you can start the journey towards your financial goals. It all starts with effective budgeting.

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