How to Master the Art of Budgeting

In today's complex financial landscape, managing your finances effectively is essential for achieving both short-term goals and long-term financial security. Whether you are a young professional, a seasoned entrepreneur, or planning for retirement, having a balanced approach to budgeting can make all the difference. As a Certified Financial Planner and coach at the Richness Academy, I have seen firsthand how a well-structured budget can lead to financial freedom and a fulfilling life.

In this guide, I will introduce you to a balanced budgeting strategy that goes beyond the traditional 50/30/20 rule. This revised approach not only covers your essential needs and wants but also emphasizes the importance of saving for the long term, investing in your happiness and education, and giving back to the community. By following this strategy, you can achieve financial success while ensuring personal fulfilment and positively impacting the world.

The Foundation: A Balanced Budgeting Approach

Let us break down the revised budgeting strategy:

50% for Needs: These essential expenses are critical for your day-to-day living. This category includes housing (mortgage or rent), utilities, transportation, healthcare, groceries, and other necessities.

20% for Wants (split into Short-Term and Long-Term Goals):

10% for Short-Term Wants: This portion is for discretionary spending on items or experiences you plan to enjoy within the next year. It includes dining out, shopping, entertainment, vacations, and other short-term indulgences.

10% for Long-Term Wants: This category is for discretionary goals you plan to achieve within 3 to 5 years. It could include saving for a big vacation, purchasing a car, or other significant non-essential expenditures.

10% for Savings and Long-Term Investing: This portion is dedicated to securing your financial future. It includes contributions to retirement accounts, long-term investments, and building a robust emergency fund.

10% for Self-Happiness: This category is specifically earmarked for activities and experiences that bring you joy and enhance your well-being. Whether it is a massage, a spa treatment, a movie night, or any other form of self-indulgence, the key is to spend this money every month before the month ends to ensure you are continuously investing in your happiness.

5% for Self-Education: Personal growth and skill development are crucial for long-term success. This portion of your budget is dedicated to self-education, whether purchasing online courses, attending workshops, buying books, or investing in any form of learning that contributes to your personal and professional development.

5% for Giving: This category is for giving back to the community, supporting charitable causes, and promoting values you believe in. Whether you donate to a charity, help someone in need, or volunteer your time, this portion of your budget is about making a positive impact on the world around you.

Why Each Category Matters

Each category in this balanced budgeting approach plays a vital role in creating a well-rounded and fulfilling life. Let us explore the significance of each category in more detail:

1. Needs (50%): Covering your essential expenses is the foundation of financial stability. With this, you can focus on other aspects of your life. Ensuring that your basic needs are met first allows you to build a secure financial base from which you can grow.
2. Wants (20%)—Short-Term and Long-Term: Balancing short-term and long-term desires is crucial for maintaining a fulfilling lifestyle. By allocating funds for immediate pleasures and future goals, you can enjoy the present while working toward larger aspirations. This balance prevents you from overspending on fleeting pleasures while ensuring that you are planning for meaningful experiences.
3. Savings and Long-Term Investing (10%): Securing your financial future requires consistent savings and smart investing. Whether building a retirement fund, growing your investment portfolio, or setting aside money for unforeseen circumstances, this category ensures you are prepared for the long term. As Robert Kiyosaki, author of "Rich Dad Poor Dad," famously said, "It is not about how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."
4. Self-Happiness (10%): Investing in your happiness is just as important as investing in your financial future. Happiness fuels productivity, creativity, and overall well-being. Setting aside money each month for activities that bring you joy ensures that your life remains balanced and fulfilling. Remember, this 10% should be spent each month to maintain a continuous focus on your well-being.
5. Self-Education (5%): Continuous learning is essential for personal and professional growth. Allocating funds for education allows you to invest in yourself, enhance your skills, and stay relevant in an ever-changing world. As Benjamin Franklin wisely stated, “An investment in knowledge pays the best interest.”
6. Giving (5%): Giving back is a powerful way to create positive change in the world. Whether through charitable donations, supporting a cause you care about, or volunteering your time, giving helps others and enriches your own life. As Winston Churchill said, "We make a living by what we get. We make a life by what we give."

Implementing the Balanced Budgeting Strategy

Now that we understand the importance of each category, let us explore how to implement this balanced budgeting strategy in your life.

1. Assess Your Current Financial Situation

Start by reviewing your current income and expenses. Categorize your spending into six categories: needs, short-term wants, long-term wants, savings and investing, self-happiness, self-education, and giving. This will give you a clear picture of where your money is going and help you identify areas where you can make adjustments.

2. Calculate Your Budget Allocation

Once you understand your finances, calculate how much you should be allocated to each category based on your income. For example, if your monthly income is `100,000, you would allocate `50,000 to needs, `10,000 to short-term wants, `10,000 to long-term wants, `10,000 to savings and investing, `10,000 to self-happiness, `5,000 to self-education, and `5,000 to giving.

3. Prioritise Your Expenses

With your budget in place, prioritize your expenses within each category. Ensure your essential needs are first covered by your savings and investing goals. Allocate funds for your wants, self-happiness, education, and giving in a way that aligns with your values and lifestyle.

4. Track Your Spending

Track your spending consistently to ensure you're staying within your budget. Use budgeting apps or spreadsheets to monitor your expenses and make adjustments as needed. This will help you stay on track and avoid overspending.

5. Reevaluate and Adjust

Life is dynamic, and so is your financial situation. Regularly reevaluate your budget and make adjustments as necessary. If your income increases or your financial goals change, recalibrate your budget to reflect your new circumstances.

6. Invest in Self-Happiness and Education

Use the 10% allocated for self-happiness to invest in activities that bring you joy and fulfilment. Whether you take a weekend getaway, enrol in a yoga class, or indulge in a spa day, ensure that this portion of your budget is spent every month to maintain a consistent focus on your well-being.

Similarly, allocate 5% of your income for self-education. Whether you take online courses, attend seminars, or purchase educational materials, investing in your education will pay dividends in your personal and professional life.

7. Give Back to the Community

The 5% allocated for giving allows you to impact the world around you positively. Whether you donate to a charity, support a cause, or volunteer your time, giving back not only helps others but also enriches your own life.

Action Plan: Implementing the Balanced Budgeting Strategy

It is essential to take action to benefit from this balanced budgeting strategy. Here is a step-by-step plan to help you implement this strategy and achieve both financial success and personal fulfilment:

1. Set Clear Financial Goals: Define what you want to achieve financially in both the short term and long term. These goals will guide your budgeting decisions and keep you motivated.
2. Automate Your Savings and Investments: Set up automatic transfers to your savings and investment accounts. This ensures that you are consistently saving and investing for your future without having to think about it.
3. Create Separate Accounts for Each Category: Consider opening separate accounts for each category, such as a self-happiness fund, education fund, and giving fund. This will help you track your spending and ensure that you are prioritizing each category effectively.
4. Educate Yourself Continuously: Continuously educate yourself about personal finance, self-improvement, and the causes you care about. Read books, attend workshops, and seek advice from financial experts to stay informed and inspired.
5. Practice Gratitude and Mindfulness: Cultivate a mindset of gratitude for what you have and can achieve. This positive outlook will enhance your happiness and help you stay focused on your goals.
6. Review Your Progress Regularly: Review your budget and financial progress regularly. Celebrate your successes and make adjustments where necessary to stay on track.
7. Seek Professional Guidance: If you need help implementing this balanced budgeting strategy or need personalized advice, consider consulting a financial planner. A professional can provide tailored guidance to help you achieve your financial and personal goals.

Disclaimer:

The information provided in this article is for general informational purposes only. The content reflects the views and opinions of the author, Taresh Bhatia, based on personal experiences, research, and professional expertise. It is not intended to be a substitute for professional financial advice, legal advice, or counselling. Readers are encouraged to seek professional advice tailored to their specific circumstances before making any decisions based on the content of this article. The author and publisher assume no responsibility for any errors or omissions or for the results obtained from the use of this information.

About the Author: 

Taresh Bhatia is a CERTIFIED FINANCIAL PLANNER, coach, and mentor at the Richness Academy, dedicated to helping individuals and families achieve financial freedom and live a life of true richness and fulfilment. With years of experience guiding clients from diverse backgrounds—including working professionals, entrepreneurs, young married couples, retirees, single mothers, and divorced women—Taresh combines practical financial strategies with profound personal insights. As the author of the Amazon best-seller "The Richness Principles," Taresh is committed to empowering others to unlock their potential and create lives that are not only financially secure but also deeply meaningful. Through his blog, podcast "Taresh Talks," and coaching programs, Taresh continues to inspire and guide his audience on their journey to wealth, happiness, and fulfilment.