5 Common Sense Budgeting Techniques
Image: Kevin Steinhardt
When it comes to balancing your income and expenses, figuring out what goes where can be difficult, especially when you factor in things like social lives and everyday essentials. If you're not careful about spending, it's easy to lose track.
We've all fallen victim to short bursts of spend-happy periods in which we blow our paycheck all at once. Though it may feel fun to let your mind take a break and spend as you wish, it isn't the best thing for your wallet. No one enjoys living paycheck to paycheck, and if someone told you there was a way to make your money last for longer, wouldn't you jump at the chance?
Well, guess what? You can! In order to ration your money and take care of all the bills, as well as have some money left over on the side for saving and spending, smart budgeting can help to organize your finances. There are so many different budgeting methods, but we picked the five that are the most common sense and easy to follow.
We've done our homework and found budgets fit for every personality, whether it be the detail-oriented calculator, the person aiming to pay down their debt, or the person who doesn't want to deal with any of the numbers but just wants to save a lot. Where do you fit? With these techniques, you can allocate your money wisely and improve your financial state.
1. The Envelope System
The envelope system is intrinsically simple. To begin, add up all of your fixed and variable expenses, including rent, utilities, groceries, etc. Subtract this from your income, and put each expense into its own envelope. Label each envelope with its total cost and name, and when you receive each paycheck, put the amount in cash for each envelope.
This is a basic way of making sure you have the assets you need for all your expenses as well as a way to only use cash for the month. The rest is yours to have, whether it be for spending or saving.
2. The 50/30/20 Rule
In this popular budgeting technique, costs are split into three main categories in chronological order.
50: You should be using no more than 50% of your take-home pay on all the essential expenses in your life (necessities).
20: Put a minimum of 20% of your paycheck toward a strong financial standing by contributing to savings or debt payments.
30: No more than 30% of your take-home pay should be used on lifestyle choices, such as entertainment, shopping, fine dining, cable, and Internet.
3. Snowball Budget
This budgeting technique is good for those struggling with debt who want a way to create a payment system.
Begin by calculating the overall amount you owe on all your debts. Once you have that figure, decide how much income you'll use to make monthly payments to chip away at that debt.
After your simple budget has been made, begin applying that income toward paying the debt down each month, beginning with the smallest debt to the largest one.
4. Digital Budgeting
We've written about PFM apps before and they're incredibly helpful when it comes to personal finance. Many free apps come with budgeting tools.
Yodlee for example is a free service which allows users to set budget goals for your spending, which it categorizes automatically.
The app will monitor your budget goals and email you when you're close to reaching your spending cap. The service also sends you a status report at the end of each month.
5. Reverse Budgeting
This budgeting method consists of only one thing: savings goals. To use this technique, instead of setting up categories to analyze spending, create aggressive savings goals.
As long as you contribute to the goals you've set, the rest is a gray area. This type of budgeting is only focused on one thing, which is hitting savings targets.
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This article originally appeared on MyBankTracker.com.
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