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Financial Planning Series: Effective Budgeting Strategies

By Rahul Bharadwaj

Budgeting is an important aspect of student life, even more so when you are new to a country where regulations and spending patterns may be different from your own country.

Creating a budget is one of the most important initial financial steps you can take to better understand your finances and the nuances of financial planning, thus helping you track your expenses and see where your money goes.

Budgeting will help you see your goals, which may be short-term or long term, with better clarity. Something like a trip that would come up in the foreseeable future or a plan to pay back your student loans is a good example of financial goals a student could have. It's expected that the budgeting skills that you acquire now will greatly help you once you graduate. To organize your budget, there are plenty of apps out there that help you plan & track your budget, even a simple spreadsheet would do; such as through Google Sheets.

How to budget effectively

1. Calculate how much money comes in, known as net Income. This could be in the form of part-time jobs that you undertake or parental assistance that comes in. This is important as it acts as a baseline and also tells you how much you can spend every month. If it is a regular paycheck that your employer deposits into your account, that would be considered as your net income. If you have irregular hours working part time, which is often the case, it is good to base your estimate on the average hours you get paid for every week. 

2. The next step would be to see all the expenses that you collect every month, these could range from groceries, phone bills, dining out, OTT subscriptions, insurance, rent and associated utilities. 

3. The third step would be to classify these expenses as being fixed or variable. Fixed expenses are those that you have an obligation towards, such as rent, tuition fees, groceries, and transportation. Variable expenses would be those that are versatile, such as OTT subscriptions, dining out, and associated entertainment expenses. If for some reason your income were to decrease, you can cut down on your variable expenses as the fixed ones are costs you always have to pay. 

4. The fourth step involves putting a figure against all the expense heads, this can easily be derived from your bank or credit card statements. Most of the fixed costs will not change e.g. your rent, phone, or internet plans. However, your variable expenses will be subject to change as per consumption, e.g. utilities.  For categories such as these, we can average from 3 months of data to arrive at an approximate figure for budgeting. 

5. The final step is to compare expenses to the net income and see if you can afford the current lifestyle. There are two ways to address any deficits, either make more money by taking on an additional job or cut your variable expenditure.

Now that you have made a budget, it is necessary to stick to it. Following this strictly will help pay off your debts and further your financial literacy. 

In order to stay in track, keep reminders to budget all your spendings. Your banking app can also give you a breakdown of spends especially if you are able to put all your expenses onto a credit card. If there is ever a change in income or expenditure, this must be reflected in your budgeting calculation in order to avoid any financial pitfalls. 

Happy budgeting!


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