“Create a budget” – this has been the most overused line in many financial management articles. Surely, finding budgeting methods for your finances comes as a necessary task to ensure smart spending.
However, despite this given wisdom, many questions still arise in the consciousness of readers: How specifically should one budget his or her finances? What budgeting methods should he or she use? What defines the right budgeting?
If you’re one among the many who’s still in the midst of discovering the right budget to follow, then you have come to the right article. Here, we have compiled 4 budget methods that you can try and follow before the year ends. Check them out.
1. The Traditional Budgeting Methods
The traditional budget is the most common type of method people use when planning to keep their finances on track. Under this method, you will list your personal income and expenses and find out what’s left once you subtract the latter from the former.
Once you’ve identified the difference, you can begin to set goals on how much you want to spend in each of your personal expenses. This could be done by creating a spreadsheet and entering each item covered on your personal expenses (i.e. groceries, gas, entertainment, etc.)
From there, you can adjust each figure and come up with the right budget plan that will lead to your intended amount of spending.
The traditional budget is the best technique for people who are sensitive to details and are not in a hurry.
2. The 50/30/20 Budget
Another effective budgeting method you can try is the 50/30/20 budget rule. As the name implies, this budget method requires you to break down your expenses into three categories, namely by needs, wants, and savings.
Following the rule, 50 percent of your after-tax income should be reserved for your needs, 30 percent for your wants, and 20 percent for your savings.
First introduced by Harvard bankruptcy expert Elizabeth Warren, the 50/30/20 budget rule lets you manage your finances responsibly and keep a strict track on your spending.
However, it must be noted that dividing your needs from your wants could be very tricky. To avoid mistaking your “wants” as your “needs,” it is important to limit the latter with your vital necessities only, such as food, housing, etc. Create a budget plan ahead to have a clear vision of your monthly expenses and for easier budgeting.
3. The 80/20 Budget
Not the type of person who’s fond of listing your items piece by piece? If so, then the 80/20 budget might be the best alternative.
Unlike the 50/30/20 budget, this rule doesn’t require you to do any expense tracking. Instead, you only need to take your savings off the top and then spend the rest.
As the name implies, individuals who follow this budgeting method devote 20 percent of their after-tax budget to their savings and then leave the rest to whatever they want to spend on.
4. The Reverse Budgeting Approach
If you want an even simpler budgeting technique, you can also try on what we experts call as “the reverse budgeting approach.”
Staying true to its name, this technique requires you to take off your expenses from your monthly income and focus on certain goals, such as paying off a debt or saving a certain amount of cash each month.
Budgeting might be a little tricky, especially without the right techniques and methods. Be sure to practice responsible and smart spending with these 4 proven and tested budgeting methods before the year ends.
Create your budget plan now to avoid incurring debt and help you achieve your financial goals!