:: Full guidance on budget planning

What is budget planning?

The budget plan is to establish a detailed financial plan, setting out expected income and expenditure, to better control and manage the finances of individuals or families. Effective budgets help you to understand the flow of money, avoid excessive spending and achieve financial goals. Budget planning is the first step towards financial freedom, and by consciously allocating resources you can optimize consumer decisions and prepare for the future.

Why does budget planning need to be done?

Control of expenditure: Many people do not know where their money is spent. The budget allows you to see clearly each expenditure and to identify unnecessary expenditure.
Achieving the objectives: Whether it is saving money to buy a house, learn new skills or travel around the world, the budget is a tool to realize these dreams.
Debt reduction: Through an effective budget, you can develop debt repayment plans and speed up the exit from debt.
Response to emergencies: The budget helps you to set up a contingency fund (usually for three to six months of expenditure) to prepare for unemployment or medical emergencies.
Improving financial health: Long-term budget management improves the financial position of individuals and reduces financial stress and anxiety.
(b) Making informed decisions: Knowing your financial situation, you can make wiser monetary decisions.

Common budget categories and ratios

Housing: Rent or mortgage, property, water and electricity, network costs (usually 25-35% of income)
Food: Expenditure on daily food purchases and catering (10-15 per cent of revenue, usually)
Transport: Car loans, petrol, public transport, parking fees, vehicle insurance and maintenance (usually 10-15 per cent of income)
Insurance: Health insurance, vehicle insurance, life insurance, housing insurance, etc. (10-25% of income, usually)
Medical care: Medical expenses, prescription drugs, dental, glasses, etc. (usually 2-8% of earnings)
Personal care: Appearances, fitness, clothing, hairdressing, etc. (5-10% of earnings, usually)
Entertainment: Films, games, subscription services, tourism, etc. (5-10% of income, usually)
Education: Tuition fees, books, online courses, etc. (as applicable)
Savings: At least 10-20 per cent of income should be set aside for savings and investment
Debt repayments: Repayment of debts on credit cards, loans, etc.

Common budget methodology

50/30/20 Rules: This is the most popular budget method. Fifty per cent is spent on essential expenses (housing, food, transport, etc.), 30 per cent on optional expenses (recreation, subscriptions, etc.) and 20 per cent on savings and debt servicing.
Zero-based budget: Each cent has a clear purpose and income minus all expenditure equals zero. This requires more planning, but provides the greatest financial control.
Console: Cash envelopes for each category, ready to run. This method is particularly effective for expenditure control.
Value budget: The allocation of funds is based on individual values rather than on a one-size-fits-all percentage. This better reflects individual priorities.
70/20/10 Rule: Seventy per cent is spent on living, 20 per cent on savings and investment and 10 per cent on donations and education.

Steps to establish an effective budget

Calculated total income: All sources of income, including wages, income from free employment, investment earnings, etc.
List all expenditures: Re-read bank and credit card statements for the last 3-6 months and show all expenditures
Category of expenditure: Disaggregating expenditure into different categories, identifying which are necessary and which are optional
Set objectives: Setting savings targets, debt repayment targets, etc.
Budget formulation: Allocation of specific amounts for each category
Tracking and adjustment: Budget is reviewed periodically and adjusted for actual expenditure

Budget management techniques

Automation savings: A portion of the salary is transferred to the savings account as soon as it is paid, so that you are not tempted to spend the money.
Use of budget applications: There are many budget applications that automatically track expenditures and classifications, making budget management easier.
Periodic review: The budget is reviewed at least once a month to see if you are within the budget and whether adjustments are required.
From the big: Do not try to control all expenditures once and for all. First, attention is paid to the largest expenditure categories (e.g. housing, transport).
Establishment of contingency fund: In the formulation of the budget, priority is given to the establishment of a contingency fund. The target is three to six months of living expenditure.
Avoid perfection: The budget does not need perfection. If you're off the plan, don't be discouraged. Rearrange, move on.