What Is Your Budgeting Style?
One of the reasons why many people shy away from budgeting is because it can seem tedious, annoying and perhaps even difficult. As result, they struggle with being successful creating and/or sticking to a budget.
However, there are a variety of different ways in which you can budget and your success with budgeting can be greatly improved by the budgeting method or style you select.
The method you choose is entirely up to you, the most important part is picking a style that works for your life and one that you (can grow to) like even if you currently hate budgeting!
However, there are a variety of different ways in which you can budget and your success with budgeting can be greatly improved by the budgeting method or style you select.
The method you choose is entirely up to you, the most important part is picking a style that works for your life and one that you (can grow to) like even if you currently hate budgeting!
Budgeting Using Percentage Breakouts
The most common being the 50/30/20 breakout. In this method, you break your income into percentages and then plan out your spending and savings accordingly:
- No more than 50% of your income would go towards your needs and essentials so things like housing, transportation, food etc.
- No more than 30% of your income would go on wants and non-essentials for instance travel, getting your hair done, shopping etc
- At least 20% of your income would go towards savings and debt repayment.
Budgeting with the Envelope or Cash System
This works by subtracting your expenses from your income and then putting each expense amount into its own envelope. This would include things like bills you need to pay and your day to day expenditure.
You can keep the money for your big bills in virtual envelopes that you track through a spreadsheet or an app and then put actual cash for your smaller expenses or day to day transactions in actual physical envelopes.
Once the envelope for a particular expense is depleted, you can no longer spend any more money in that category unless it is an emergency. If you don't spend all the money in a particular expense envelope, then you can repurpose the funds towards something else like savings or debt.
You can keep the money for your big bills in virtual envelopes that you track through a spreadsheet or an app and then put actual cash for your smaller expenses or day to day transactions in actual physical envelopes.
Once the envelope for a particular expense is depleted, you can no longer spend any more money in that category unless it is an emergency. If you don't spend all the money in a particular expense envelope, then you can repurpose the funds towards something else like savings or debt.
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Know How Much You Actually Make
The correct answer here is not just your annual salary, nor is it dividing your annual salary into twelve parts for a monthly budget. Instead, you should be basing your budget on your take-home pay per month.
If you make $48,000 a year as a salary, you’re likely knocking off somewhere around $8,000 in income taxes, and likely much more than that when you look at other work benefits and costs you’re paying up front for them, like health insurance.
Because of that, using $4,000 a month as the basis for your budget simply isn’t correct – the correct number is likely much closer to $3,000, and possibly below that.
Make sure you know exactly what you’re bringing home as a paycheck, because that’s the number you’ll use as the framework when you budget.
If you make $48,000 a year as a salary, you’re likely knocking off somewhere around $8,000 in income taxes, and likely much more than that when you look at other work benefits and costs you’re paying up front for them, like health insurance.
Because of that, using $4,000 a month as the basis for your budget simply isn’t correct – the correct number is likely much closer to $3,000, and possibly below that.
Make sure you know exactly what you’re bringing home as a paycheck, because that’s the number you’ll use as the framework when you budget.
Have a simple budgeting tool that you understand how to use – start with pencil and paper if you have to.
If you’re starting off by sitting down with Quicken or Microsoft Money and you’re quickly overwhelmed by the complexity of the software and the huge number of options available, it’s going to be a lot harder to convince yourself to keep going with this.
Your first budget should be incredibly easy to use and manage – and you should understand it from the inside out.
Your first budget should be incredibly easy to use and manage – and you should understand it from the inside out.