5 Budgeting Methods that work

5 Budgeting Methods that Work

Starting a budget may seem nerve-wracking, stressful, and even a little boring; but getting over that initial anxiety can lead to proper money management and peace of mind. Everyone should have some form of a budget, but they are especially necessary if you are trying to save, get yourself out of debt, or if money is tight. We have compiled five different forms of budgeting to help you find the one that is best for you.

1. 50/30/20 Budget

The 50/30/20 Budget is a pretty standard form of practice to make sure that you are living within your means. Basically, this rule is saying that 50% of your income should go towards recurring expenses (such as rent/mortgage, insurance, and bills), 30% should go to discretionary funds (such as groceries, gas, shopping, and entertainment), and 20% of your income should go to savings, investments, and debt reduction. The biggest thing to note here is if you are spending more than 50% of your income on your recurring expenses, then you are living out of your means. Many people find themselves spending 80% of their income on just their rent or their mortgage, and that is just way too high. Of course, that is also indicative of a larger societal problem and the high cost of living; but nonetheless, you should avoid spending more than 50% of your income on your recurring expenses. If you think this method might work for you, click here for a free printable that will get you started. Simply write down the money from your paycheck, and multiply that amount by .5, .2, and .3 to get the amount of money that will go into each category. From there, you can keep track of what you spent in each category.

2. The Envelope System

This is a good budgeting system for people who struggle with overspending. Every time you get paid, figure out how much you need for your savings and your recurring expenses. Transfer the required money to your savings and expenses. Withdraw whatever is left over. Label different envelopes with categories such as: groceries, gas, eating out, shopping, entertainment, etc.; and divide up the cash accordingly. The idea with this method is that physically handing over cash makes you more aware of how much you are spending than if you were swiping a credit card. This method is not meant to be done forever, it is only meant to help teach you how to avoid overspending. Once you feel confident that you can stick to a budget, you can move on to another budgeting technique.

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3. The Bucket Method

The bucket method is the same as the envelope system, except you are not taking cash out of your account. To do this, you simply need to have some sort of spreadsheet software (such as Excel). In your workbook, make different sheets for the different expenses that you have such as: savings, rent, utilities, groceries, fun, etc. On the day you get paid, divide up your paycheck amongst these categories to see how much money you can spend in each category. Every time you make a purchase, record the date, where the purchase was made, and deduct the amount of money spent from the starting amount. If you hit $0 before your next paycheck, you cannot make any more purchases in that category. If you notice that you are always hitting $0 in one category and never hitting $0 in another, see if you need to adjust your categories.

4. Use a budgeting app

A lot of people make the argument that they don’t follow a budget because they just don’t have the time to sit down and track every purchase they make. Nowadays, that is no excuse because of all the budgeting apps that are available that will do all of the work for you. There are many apps that will sync up with your bank account and record every time you make a purchase. Most will even categorize your purchase for you so you can see where you are spending a lot of your money. Do some research to find out which app will work the best for you. The most popular apps are MintLearnVest, and Level Money.

5. Set up different accounts

This is a pseudo budgeting method that is good for people who really struggle with budgeting. Basically, you need to set up two checking accounts and one savings account. One checking account will be for recurring expenses only. Put in the exact amount of money needed to pay these bills. Set up automatic payments so that you don’t have to worry about paying your bills on time; it is done for you. Next, you will put a certain percentage of your paycheck into your savings account. Finally, whatever is left over will go into the second checking account; this is your flexible money that you can do with what you choose.

You’ve probably noticed that all of these methods are different variations of the same thing. You need to divide your money up into categories, and once you hit $0, you can’t spend any more in that category until you get paid again. These methods are just different ways to get to the same end goal. You can use just one of these methods or a combination to budget in a way that works for you. And remember, budgeting is fun!

Rachel Morris