Personal Budget – Planning & Preparation

A budget is telling your money where to go instead of wondering where it went. It is the single most effective tool used by rich people to stay rich.

1. What is a Budget?

An estimation of revenue and expenses over a specified future period (usually monthly).

• Purpose: Control. Aligning spending with goals.
• Variance: The difference between Budgeted vs Actual spend.

2. Steps in Budget Preparation

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3. Budgeting Methods

A. The 50-30-20 Rule (The Standard)

• 50% Needs: Rent, Grocery, Bills. (Compulsory).
• 30% Wants: Entertainment, Shopping, Dining. (Discretionary).
• 20% Savings: Investments, Debt repayment. (Future).

B. Zero-Based Budgeting (The Disciplined)

• Concept: Income - Expenses = 0.
• Every rupee must have a job. If you have ₹500 left, you assign it to "Emergency Fund" or "Donation". Nothing sits idle.

C. The Envelope System (Cash Control)

• Withdraw cash for specific categories (e.g., Dining Out). Put in an envelope.
• When the envelope is empty, stop spending. Good for curbing overspending.

4. Case Study: Applying the 50-30-20 Rule

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5. Variance Analysis: The Feedback Loop

A budget is useless if not tracked.

Action: Analyze the deficit. Cut "Wants" next month to recover.

6. Exam Notes: Writing the Answer

Question: "Explain the Process of Budgeting." (5/10 Marks)

Key Points:

1. Definition: It is a financial plan for a defined period.
2. Steps: Estimation -> Allocation -> Execution -> Review.
3. Methods: Briefly explain 50-30-20 and Zero-based.
4. Benefits: Control, Savings discipline, Debt avoidance.

Summary

• Rule: 50/30/20 is the gold standard for beginners.
• Pay Yourself First: Save 20% before spending the rest.
• Tracking: A budget without tracking is just a wish.
• Review: Adjust the budget if income changes or inflation hits.

Quiz Time! 🎯

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