Have you received your first paycheck yet? Getting your first salary as a fresher after college is an incredible milestone, isn’t it? So, what’s your plan for it? Will you spend it all, or would you prefer to create a realistic budget for yourself to make your financial future safe, strong, and stable?
Learn the steps you can take to create a realistic budget and start managing your finances wisely from your very first paycheck.
Smart Budgeting Tips for Freshers: How to Get Started
1. Check Your Income
What is your take-home salary? Check your pay slip. The net income you receive after taxes and deductions is the actual amount of money available for monthly expenses. Keep this in mind when planning an effective budget.
Example:
- Gross Salary: ₹40,000
- Taxes & Deductions: ₹6,000
- Net Income: ₹34,000
2. Track Your Expenses
First, write down your expenses, maybe for a month. See where your money is going. Categorise your expenses under fixed/needs and variable/wants. Record your expenses in a notebook or Excel spreadsheet, or use a budgeting app like Wallet, YNAB, or Mint. Once you know your spending patterns, you can decide how to create a realistic budget.
Categories:
- Fixed Costs: Rent, utilities, insurance, subscriptions
- Variable Costs: Groceries, food, travel, recreation
3. Apply the 50/30/20 Rule
One of the most effective budgeting strategies is striking the perfect balance between meeting your needs, wants, and saving money. The 50/30/20 budgeting rule is:
- 50% for Needs: This includes essential expenses like transportation, groceries, bills, etc.
- 30% for Wants: This includes discretionary spending on entertainment and pleasure like vacations, dining out, shopping, etc.
- 20% for Savings and Debt Repayment: This includes savings, investments, or paying off debts like student loans for a stable financial future.
4. Create Financial Goals
Create Financial Goals Setting financial goals with a short, medium or long term vision makes your financial endeavours meaningful. With a clear purpose and direction, setting financial goals can help you stay motivated and focused.
- Short-term goals: These are goals that you can achieve in a year, like saving for a gadget, vacation, course, etc.
- Medium-term goals: These are goals that are achievable within 1-5 years like saving for a down payment on a car, emergency fund, higher education, travel, etc.
- Long-term goals: These are bigger dreams like buying a car, a house, or a healthy retirement fund.
5. Craft Your Budget Plan
Once you have a clear picture of your income, expenses, and financial goals, you’re ready to plan a realistic budget. You need a strategic and balanced approach. Essential needs come first, then your desires, and finally your savings.
Example:
- Net Income: ₹40,000
- Needs: ₹30,000
- Wants: ₹5,000
- Savings: ₹5,000
6. Keep an Emergency Fund
Life is not always rosy and there are unexpected expenses like health issues, medical bills, car repairs, job loss etc. That’s why it is a wise choice to be financially prepared for emergencies. An emergency fund is your best financial safety net to face emergencies with peace of mind and confidence. Set aside a portion of your monthly income and save at least three to six months’ worth of living expenses until you reach your goal. Having a separate savings account for this purpose can keep you away from spending it.
Example:
- Emergency Fund Goal: ₹80,000
- Monthly Contribution: ₹5,000
7. Automate Your Savings
Set up automatic transfers to move your savings directly into your bank account. This way, a portion of your income is deposited directly into your savings or investment account, so it’s automatically saved before you even think about spending it. Ask your bank to transfer a fixed amount from your active account to your savings account each month. In this way, you make your savings easily stick to your budget plan and achieve your financial goals.
8.Avoid Lifestyle Inflation
Got a raise in your salary? You might be tempted to increase your expenses, but try to avoid lifestyle inflation. Focus on budget planning and direct your extra income toward savings and investments instead.
9. Stay away from Unnecessary Costs
Track unnecessary expenses like regular trips to restaurants, unused paid subscriptions, unnecessary purchases, and so on. You can then choose smart alternatives to these spending habits and cut down on your spending. This is one of the best ways to create a real budget and focus on increasing savings.
Example:
- Subscription cost: Cancel a ₹400/month streaming service you rarely use.
- Restaurants: Reduce eating outside to once a week, saving ₹1,000/month.
10. Be Prepared for Unplanned Expenses
Sometimes, you need to budget for occasional expenses like gifts, hosting guests, or car insurance, as they don’t occur every month. So, set aside some money every month for this purpose so that you do not face financial stress due to such unexpected expenses.
Understanding Tax Deductions and Other Financial Complexities
Make yourself familiar with the tax you need to pay every year. You can try tax investment plans such as ELS and PPF. Be sure to review any deductions you have for insurance, retirement plans, or professional memberships so you don’t find yourself in financial trouble come tax season.
1. Don’t Fall into the Debt Trap
If you spend money recklessly, you might find yourself in debt before you know it. You can max out your credit cards or borrow extra money from financial institutions. Don’t give in to temptation, just spend wisely. If you need a loan, plan all your repayment options. Avoid the debt trap and protect your finances.
2. Review and Adjust Your Budget Regularly
Financial situations and goals are constantly changing for each person. This is one reason why you should regularly review and update your budget at the end of each month. Also, learn from your mistakes and improvise: no matter what your financial situation is, regularly updating and adjusting your budget will ensure you’re on the right track toward achieving your financial dreams.
3. Leverage Budgeting Tools and Resources
Using the right tools and apps like Money View, PocketGuard, and Goodbudget can make budgeting less frustrating and more effective, especially for freshers. These tools can help you track your spending, categorize your expenses, and provide valuable insights into your financial habits. They can also help you plan your investments, savings, debt repayments, etc.
Example:
- Mint: Tracks your spending and helps plan budgets.
- YNAB (You Need A Budget): Helps plan every rupee of your earnings.
4. Maintain a Discretionary Budget
Pleasure and enjoyment are essential in life and for that you need to plan a discretionary budget. Subtracting your variable and fixed expenses from your take-home pay gives you your discretionary amount. This is the fun money you can spend on new clothes, restaurants, movies, adventures, and whatever else you want. But again, make sure you set clear limits and keep your spending under control to avoid overspending and falling into a debt trap, so make sure you spend the money at your disposal wisely while staying on track towards achieving your financial goals.
5. Seek Financial Guidance
As freshers, creating a realistic budget can seem difficult and confusing. If this is the case, consult a financial professional or advisor. They offer you personalized support in planning your budget. With this support, you will then be able to take control of your budget and your finances with complete confidence.
6. Celebrate
Once you create a realistic budget, even as a fresher, you will be one step closer to financial independence. Therefore, you deserve to celebrate your accomplishments. Reward yourself for even the small successes, like following your plan consistently for a few months or reaching a financial goal. This will help you stay motivated and inspired throughout the budgeting process.
Conclusion
Taking the time to read this article is proof that you have a great financial adventure ahead of you. The idea of creating a realistic budget with your first salary as a fresher brings you even closer to developing good financial habits. At first, everything looks like a puzzle. Just find the right piece and join. Patience, interest, open mind, discipline and consistency are utmost important. Follow the ideas above and our expert guidance to create your first realistic budget for yourself. A proactive approach will help you take control of your finances and pave the way to a brighter, more stress-free financial future.
FAQs
1. How should a beginner start a budget?
A beginner should start by recording your income and expenses for a month to spot spending habits. Divide expenses into essentials (like rent) and non-essentials (like entertainment). Set simple financial goals and try to save 20% of your income. Use budgeting tools like apps or spreadsheets for easy tracking. Adjust the budget regularly to stay aligned with one’s goals and spending patterns.
2. What is the 50 30 20 rule of money?
The 50/30/20 rule is a simple budgeting method. It suggests using 50% of the income for needs (like rent and groceries), 30% for wants (like dining out and entertainment), and 20% for savings or debt repayment. This approach helps manage spending while building financial security.
3. What are the 5 basics to any budget?
The 5 basics of any budget are:
- Income: Know your total earnings after taxes.
- Expenses: Track all your spending, both fixed and variable.
- Needs vs. Wants: Differentiate between essential expenses and discretionary spending.
- Savings: Aim to save a portion of your income regularly.
- Review and Adjust: Regularly review your budget and make adjustments as needed.
4. How do I split my salary?
To split your salary effectively, follow the 50/30/20 rule:
- 50% for needs (rent, groceries, bills)
- 30% for wants (entertainment, dining out)
- 20% for savings or debt repayment
Adjust as needed based on your financial situation and goals.
5. What is the easiest budget method?
The 50/30/20 rule is often seen as the easiest method. Allocate 50% of your income to needs (rent, groceries), 30% to wants (dining out, entertainment), and 20% to savings or debt repayment. This simple structure makes it easy to manage and adjust your spending.
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