5 Budgeting Methods and How They Work
iQuanti: Financial experts have been preaching about the benefits of maintaining a personal budget for decades. But how do you make one that you'll actually stick to? From the envelope system to a zero-based budget, there are lots of techniques that have been proven to be effective. Here are five great budgeting methods and how you can start using them today.
1. The traditional budget
A traditional budget is probably one of the oldest and simplest forms of budgeting a person can have. It's merely just a list of all your expenses subtracted from your income. The purpose is to help you set spending limits to ensure that your expenses are always less than your income.
The great thing about a traditional budget is that you make it with paper and a pencil if you wish. But for the more tech-savvy, there are hundreds of templates you can download for free and use with Microsoft Excel or Google Sheets.
2. The 50/30/20 budget
How should your income be broken up exactly? One useful way to do this is by following the 50/30/20 budget. Using this budgeting method, a person would divide up their after-tax income as follows:
- 50 percent on needs
- 30 percent on wants
- 20 percent to savings
What's nice about this method is that it gives you a framework for saving your money as well as budgeting it.
3. The zero-based budget
In a traditional-style budget, what happens when you have money left over? Unfortunately, many people end up spending it on non-essential purchases.
That's where a zero-based budget takes things a step further. Under this method, a person who makes a traditional budget would assign any leftover funds to a specific purpose (such as saving more for retirement or paying off a debt). The goal is to have exactly $0 left over at the end of the month, meaning there was no money wasted.
4. The cash envelope system
The cash envelope system is where someone physically puts money into a series of envelopes that are earmarked for specific purposes (such as rent, utilities, and groceries). Many people swear by this system because it forces them to ration their purchases as the money in the envelopes starts getting lower towards the end of the month. But it does also require the extra effort of planning and filling the envelopes with cash.
5. The app-based budget
If making a budget and tracking it sounds like a lot of work, why not let a smartphone app do all the heavy lifting for you? There are now dozens of reputable companies that have created software that will sync to your bank and credit card accounts, track your purchases, and provide you with a real-time report of exactly how you're doing.
People who are already comfortable with technology have found these apps to be an incredibly easy way to maintain a budget. Just keep in mind this involves giving the budgeting platform your usernames and passwords to sync your information.
The bottom line
There's no doubt that budgeting has some major advantages. From stuffing money into envelopes to using smartphone apps, the key is to pick a method that's right for you and stick to it.
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Original Source: 5 Budgeting Methods and How They Work
