Monthly Budget: Importance, Steps to Make a Monthly Budget

Read our detailed guide to understand why it is important to plan your monthly budget for better financial stability. Become your own monthly budget planner.
Monthly Budget: Importance, Steps to Make a Monthly Budget
5 min read
2 January 2024

In the realm of personal finance, planning a monthly budget plays a pivotal strategy for cultivating financial stability and achieving long-term goals. Whether you are aiming to save for a rainy day, pay off debts, or simply gain better control over your finances, a budget serves as your guiding light toward financial stability and success.

What is a monthly budget?

A monthly budget is a financial plan that outlines your expected income and expenses for a given month. With the help of this, you can manage your finances by allocating your income toward various categories of expenses, savings, and financial goals.

Steps required to plan a monthly budget

  • Gather financial details by collating all the sources of income and expenses.
  • Categorise expenses into fixed (rent, loan payment, etc), and variable (groceries, entertainment, etc.).
  • Identify financial goals – savings, debt repayment, etc.
  • Allocate funds to each category based on your priority.
  • Track your spending consistently and allocate some funds for emergencies.
  • Regularly review and adjust the budget to stay aligned with goals.
  • Maintain discipline, adapt as needed, and stay focused on financial objectives for long-term stability and growth.

Why monthly budgeting is important?

Monthly budgeting is crucial as it grants financial clarity, revealing where money comes from and where it goes. Budgeting nurtures informed decisions, fosters smart spending habits, and enhances long-term financial stability. A monthly budget is critical if you have an ongoing loan or planning to borrow a new one.

In case you are looking to borrow a loan, staying on top of your monthly budget helps in managing your FOIR (fixed obligations to income ratio). It is a financial metric used by lenders to assess a borrower's repayment capacity before approving a loan. It signifies the percentage of your fixed monthly obligations—such as existing loan payments, rent, or insurance premiums—relative to your monthly income. It helps lenders in evaluating if a borrower can manage additional loan repayments without overburdening their finances. A well-planned monthly budget also ensures consistent and timely payments of your loan. This will eventually help in safeguarding your credit score and easing financial stress. Online tools like EMI calculators help in evaluating your monthly instalments in advance. This eventually helps in planning your finances better and avoiding any defaults while you are repaying your loan.

In essence, the monthly budget stands as the compass guiding one's financial journey, offering a roadmap to fiscal stability and freedom. It not only helps in achieving your long-term financial goals but also helps in managing funds in case of an emergency.

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