A monthly household budget that survives real life

A budget fails for one of two reasons. Either it has so many categories that nobody keeps it up, or it is a single hopeful number that takes no account of rent, fees and EMIs. The method below sits in between and takes about half an hour to set up.

Step 1: find your real monthly income

Use the amount that actually reaches your accounts, after tax and deductions. If income varies from month to month, use the lowest of the last six months rather than the average. A budget built on a good month breaks in an ordinary one.

Step 2: list the fixed costs

These are payments whose amount and date you already know: rent or home-loan EMI, other EMIs, school fees, insurance premiums, SIPs and recurring deposits, internet, mobile plans, subscriptions, and wages for household help. Add electricity, gas and water at a typical month's figure.

Two things are easy to miss:

• Annual payments. Insurance renewals, school term fees, vehicle servicing and society maintenance arrive once or twice a year and wreck the month they land in. Add them up, divide by twelve, and treat that as a monthly fixed cost you set aside.
• Auto-debits you have forgotten. Go through one bank statement line by line. You may find a subscription nobody uses.

Step 3: decide savings before spending

Pick an amount to save and treat it as a fixed cost, moved out on salary day. Saving whatever is left at the end of the month rarely works, because there is rarely anything left.

Step 4: what remains is your spending money

Income, minus fixed costs, minus savings, is the amount you actually have for groceries, transport, eating out, clothes, gifts and everything else. This is the only number you need to watch day to day.

Step 5: turn it into a daily number

₹27,000 for a month is hard to judge on the 9th. Divide what is left by the days remaining and you get a number you can check in seconds. On the 1st of a 30-day month the example household has ₹900 a day. If they have spent ₹10,000 by the end of the 9th, they have ₹17,000 for 21 days, which is about ₹810 a day. The daily figure moves as you spend, so an expensive weekend shows up immediately as a slightly tighter number rather than as a shock on the 28th.

Step 6: track with as little effort as possible

The budget only works if spending gets recorded, and it only gets recorded if doing so is quick. A few habits help:

• Record at the moment of paying, not in the evening from memory.
• Keep categories few. Eight to ten is plenty for most homes: groceries, transport, eating out, health, children, home, clothing, gifts, entertainment, other.
• Record cash too. Small cash payments are where most "missing" money goes.
• Do not chase perfection. A record that is 90% complete and kept all year beats a perfect one abandoned in March.

Step 7: review once a month, briefly

At month end, look at three things only: which category was highest, which one surprised you, and whether the fixed costs changed. Adjust next month's figures and stop. Long post-mortems are how budgeting becomes a chore.

When the month goes wrong

A medical bill, a wedding or a repair will break the plan sooner or later. That is not a failure of the budget. Record it honestly, reduce the daily figure for the rest of the month, and if it happens often, add a small "unplanned" line to the fixed costs so it has somewhere to come from.

This article is general information, not personal financial advice.