How to Create and Stick to a Monthly Budget

Managing money well starts with one skill—budgeting. A monthly budget helps you control spending, avoid debt, and achieve financial goals faster. In India, where inflation and lifestyle costs are rising, a solid budget is more important than ever.

Why Budgeting Matters

According to the Reserve Bank of India, household savings as a percentage of GDP dropped from 23.6% in 2012 to 18.7% in 2023. This shows that Indians are saving less and spending more. A clear budget can reverse this trend by ensuring money flows toward savings, investments, and essentials instead of impulse expenses.

Step 1: Calculate Your Net Income

Your net income is what you take home after taxes, PF, and deductions. This figure is the foundation of your budget. For salaried employees, it is the monthly salary credited to your account. For freelancers or business owners, it may vary—so use an average of the last 3–6 months.

• Check your payslip or bank statement for accurate numbers.
• If income is irregular, budget based on the lowest expected amount.
• Exclude bonuses or windfalls from your core budget—treat them as savings.

Step 2: Track Your Current Expenses

You can’t fix what you don’t measure. Track where your money is going for at least one month. Categorize expenses into:

• Fixed expenses: Rent, EMIs, school fees, insurance premiums.
• Variable expenses: Groceries, electricity, petrol, dining out.
• Discretionary spending: Shopping, streaming apps, entertainment.

Tools like Excel, Google Sheets, or apps such as Walnut, Money View, or Mint can make this process easy.

Step 3: Choose a Budgeting Method

There’s no one-size-fits-all. Here are the three most popular methods:

1. 50/30/20 Rule

Allocate 50% to needs, 30% to wants, and 20% to savings/investments. This is ideal for young professionals starting out.

2. Zero-Based Budget

Every rupee is assigned a purpose—rent, bills, SIPs, or savings—so your income minus expenses equals zero. Perfect for detail-oriented people.

3. Envelope System

Cash is divided into envelopes labeled “groceries,” “rent,” “fuel,” etc. Once an envelope is empty, you stop spending. Many Indians still prefer this cash-based discipline.

Step 4: Set Realistic Financial Goals

Budgets fail when goals are vague. Define clear targets such as:

• Save ₹5,000 every month for emergency fund.
• Invest ₹10,000 in SIPs for retirement.
• Pay off ₹2 lakh credit card debt in 12 months.

Attach timelines to each goal. Small, achievable goals build confidence and consistency.

Step 5: Cut Unnecessary Expenses

Once you know where your money is going, start trimming. Some easy savings include:

• Cancel unused subscriptions like OTT platforms.
• Cook at home more often instead of frequent dining out.
• Use public transport or carpool to reduce fuel costs.
• Buy groceries in bulk to avoid frequent impulse buys.

Step 6: Automate Your Savings

The best way to stick to a budget is to remove temptation. Set up auto-debits for:

• SIPs or recurring deposits (RDs).
• Loan EMIs and insurance premiums.
• Monthly transfers to a separate savings account.

Automation ensures you save before you spend, not after.

Step 7: Review and Adjust Monthly

No budget is perfect on the first try. Review your spending at the end of each month:

• Did you overspend in any category?
• Can you increase savings by 5–10%?
• Do you need to reallocate funds as per lifestyle changes?

Regular review prevents financial drift and keeps you on track.

Common Budgeting Mistakes to Avoid

• Setting unrealistic goals (saving 70% of salary is impractical).
• Forgetting irregular expenses like car insurance or festival shopping.
• Not having an emergency fund—forcing you to dip into savings.
• Budgeting only on paper but not tracking in reality.

Expert Insights

“Budgeting is not about restricting yourself, it’s about gaining financial freedom,” says Adhil Shetty, CEO of BankBazaar. “Start with small, consistent habits—like saving 10% of your salary. Over time, it compounds into wealth.”

Free Tools for Budgeting

Here are some helpful free resources:

• RBI Financial Literacy Page – official guides on saving and investing.
• Money View App – tracks expenses and categorizes automatically.
• Google Sheets Budget Template – customizable for Indian households.

FAQs

How much should I save monthly?

Ideally, 20–30% of your income should go into savings and investments.

What if I have irregular income?

Base your budget on your lowest expected monthly income. Use surplus months to build an emergency buffer.

How do I stay disciplined?

Automate savings, set reminders, and review your budget every month to stay on track.

Key Takeaways

Budgeting is a journey, not a one-time task. Start small, stay consistent, and you’ll see your financial stress reduce while your savings grow.