Monthly Income Expense guide

Many of us believe that 'saving money' is the only best practice one can follow to achieve the financial goals. There have been a huge backing to this theory. There had been a time, people used to follow this age-old technique could save a decent amount of money and eventually become so called 'rich and respected' person in the society. But is the world same always? The time has been changing and it will change drastically. The survival practices our previous generations were following are not applicable to us anymore. After another generation, those might be useless. Then why do you think that the same thing does not apply to the most important aspect of modern life - money?

That's why our very first topic is related to your 'monthly income/expense' as an individual. Somewhere it is said that unless you can measure it, you can't manage it. In simple words, if you do not see how your money comes in & goes out, you can't figure out how you can manage your money and work towards your most desired finance goal. Read the complete article to know more about how you can plan and distribute your monthly income to fulfill all your needs and at the same time put significant portion of it to work for your goal.

In the end you will also find a spreadsheet which will help you to identify your major spends and allot sufficient part of your income to it without disturbing your overall finance goal.

First of all you need to list out all you expense. Pretty cliche line isn't it? But don't worry I've listed six major sectors where you do and/or should spend your money.

1. Needs

2. Education & fitness

3. Saving (Not investment)

4. Happiness & luxury

5. Investment

6. Charity

Needs: Be you are family person or a bachelor, there are certain things you spend a significant amount of your money on. Like your rented accommodation, your loan EMIs, daily transportation, food & grocery, etc, etc. But significant amount means how much? Ideally it should not be more than 50%. So that you can distribute rest 50% to remaining 5 sectors as 10% each.

Education & fitness: It is said that a person 'learns to live' till the death and it's a fact. The education what we took in school and college was just a tool to keep you going in the society and earn some living by getting into a profession. However what we are discussing here about is more than that. Educating yourself can be a separate topic altogether but let us wrap it with a definition - learning something which will help you to grow further in your career and for your personal well being. that takes you to another section - fitness. In a definition of 'success' - heath is something we must consider as inclusive. Because anyone can enjoy wealth only when his/her health is in good state. Allotting at least 10% of your income to consistently educate yourself and keep yourself fit will definitely be a best practice and I highly recommend that.

Saving: Many of us misinterpret 'savings' with 'investment'. That is where, I feel, they make a big money mistake. Earning money and getting rich is not just a number game. In real life you come across situations where you face challenges and sometimes they comes with a cost. If you are not prepared for these, there is no point in how much money you've made. So 10% of your income keeping as 'emergency fund' with full liquidity is not just a recommendation but a strict instruction.

Happiness & luxury: I know many people who have gone through tough financial times and now when they've started making nice income, they feel it's a time to take revenge. Unfortunately this is the thinking, which eventually push them into overspending and bad debt. Also there is no point in living like rags while having loads of money saved in bank account. So here is a tip - limiting your happiness & luxury budget up to 10% of your income, will be the best and well balanced treat you can give yourself. This may include your weekend parties, restaurant visits, and even your Netflix subscriptions. But remember, the limit is 10%

Investment: Now comes the time you put your money at work. You must have read this from a finance legend, Robert Kiyosaki in his famous book 'Rich Dad Poor Dad' - poor people work for money while rich people's money work for them. How is that possible? You will learn this when you start actually investing your money into authentic instruments and see your money growing without you putting any efforts into it. So 10% of your income is a really nice figure to start with. Again what investments you can start with? That will be a separate topic and I'll definitely write about it in detail. But for now let's consider some popular and safe options like - bank Recurring deposits, Fixed deposits, liquid/debt mutual funds, etc.

Charity: This is the most important but always ignored part where your money should go, no matter how much or less you earn. It has also been discussed in old Indian scriptures and holy literature that an individual must spend 1/6th part of his income to help those who are poor and needy and a person who does so, is considered as the most virtuous. Moral of the story - unless you show some kind of gratitude towards the universe and have some kind of 'giving back' attitude, you can't make it to your goals. Now 1/6th part of income is where you might get scared and might drop the overall idea. But to comfort you, let us drop it to just 10% of your income. You can either do this time to time or in bulk, may be once in a year. You not necessarily 'go and work' there. Helping an NGO, or individuals who are genuinely working towards well being of the society can also be a noble task. The personal joy, satisfaction and worthiness you feel in doing it, will be the most amazing reward you'll get.

So here we've discussed all 6 sectors you should plan your money to go in. The percentage mentioned can vary person-to-person but allotting certain amount to these is strongly recommended.

Attached is the document which can help you to calculate how much do you spend regularly and how can you rearrange your expenses to accommodate above mentioned sectors.

Monthly_Salary_Planning_ab24218.xlsx

Download XLSX • 16KB

Hope you enjoyed the article and found some value ad through it. Do let me know your views and suggestions in comment section below. :)

#personal_finance #money #money_management

Book Reference:

Rich Dad Poor Dad - Robert Kiyosaki [Hindi Edition]

Rich Dad Poor Dad - Robert Kiyosaki [Marathi edition]