Budgeting. Ugh.

We got an overview of the seven financial planning steps a few weeks ago. Follow the process, and you can be reasonably sure of reaching financial freedom. Today, we will get into the first step in more detail. And I apologise in advance; it is by far the most boring of all the steps. In fact, for many people, it is one of the most mundane activities that one can undertake. It is genuinely so unexciting that I have been procrastinating on this newsletter for days. But sometimes, the most tedious things are the most important and must be done. So let us spend a few minutes talking about … budgeting. Yuck.

You have income coming in. You have expenses going out. So budgeting is planning, to the best extent possible, how much you can spend on what activity so you know, with some certainty, what you have left to save and invest.

Why is it so mundane? Because ideally, we don't want to be constrained when it comes to expenses. We want to get what we want when we want it, without worrying whether we can afford it. And it's a chicken and egg situation.

If you are prudent with your finances, you can reach a stage where you don't need budgets. But the first step to being prudent is to make a budget.

Making a budget is simple: note down all the essential items you spend money on and put a target expenditure amount against each.?

Rent: Rs. _____ per month

Utility Bills: Rs. ____ per month

Transport: Rs. ____ per month

And so on for all categories: Groceries, Dining Out, Entertainment, Shopping, Travel, etc.

The total is the maximum that you can spend in any given month. And obviously, this should be lower than your income–you should not be taking loans to fund your lifestyle.

Once you have prepared your budget, itemise your expenses at the end of the month and see how you did. And if you do this for a few months, you can spot trends you can fix. For example, you may be spending much more on eating out than planned and need to control that. Or cabs are costing you significantly more than budgeted, and you may need to move to public transport for a month or two. Regularly taking stock of your expenses keeps you in control of your finances.

We are human, though, and I need to be realistic.

Unless you were born with a chartered accounting spoon in your mouth, it could be quite the struggle to do this month after month.

So at a bare minimum, pick any four random months in the year and track your expenses closely in those periods. While it will not give you the perfect picture, you should still be able to spot areas for course correction. And once you get into the rhythm of doing this every few months, you might be inclined to do it more often.

Once you have your income and expenses under control , you can focus on saving and investing–the core activities that will take you to financial freedom. And budgeting, therefore, is a crucial aspect of the journey. For readers in India, we have just started a new financial year, and there could be no better time to start making a budget than now. So drudgery that it is, I highly encourage you to get started on it.

Yawn.

Rishi Piparaiya ?has held senior leadership positions in wealth management, strategy, sales and marketing with leading financial services organizations, including Citi, Aviva and Banco Santander. He left his corporate job at the helm of his career to pursue his passions. He is now a?bestselling author ,?world traveller ?and?angel investor .?His latest book,?Three Pigs to Financial Freedom , demystifies financial planning and offers an incredibly easy system to manage your money for a comfortable, worry-free life.