Achieve Goals Faster With These 5 Budgeting Strategies
When it comes to budgeting, there are a seemingly infinite number of strategies to try. Ultimately, all are designed to give you a bird’s eye view of your expenses, then help you plan ahead to curb your spending in certain categories.
If you want to start budgeting but you aren’t sure how, these five popular budgeting strategies could help you to become financially healthy.
One common budgeting strategy is the 50/30/20 budget. Using this strategy, you’ll start by dividing your income into three separate categories: wants, needs and savings or debt. Using this budget, you’ll aim to dedicate at least half your paycheck – or 50% - to needs like housing, food and utilities.
Then, you can contribute 30% of your remaining funds to the “wants” category. Whether it’s entertainment, dining out or monthly subscriptions, these are expenses you could live without, but would like to enjoy.
The last 20% of your income should be dedicated to savings or debt. This particular category may change depending on your financial situation, for example, some people may choose to build an emergency fund while others will pay down student loans. Regardless of what you choose to do with these funds, be sure to keep your long-term financial goals in mind.
This budget rule gives you a straightforward way to divide your expenses. It’s simple and flexible, so if you’re looking for a budgeting strategy that’s easy to calculate, this could be the one for you.
Zero - Sum Based Budget
If you like to know exactly where every dollar in your budget is going, then a zero-sum budget may be for you.
Using this strategy, you’ll start by determining all your necessary monthly expenses, like rent and groceries. Then, you’ll subtract that number from your monthly income to determine how much money you have left over. Your remaining money is yours to spend or save how you choose – but you’re not done yet.
Next, work with your bank or financial institution to create savings accounts for each major monthly expense. For example, one account for your monthly rent, another for your cell phone, another for your health insurance and so on. Set up automatic transfers so that each paycheck deposits the appropriate amount of money into each account. That way, when it’s time to pay bills, your funds will be ready and waiting.
Now, back to that leftover spending money. Be sure to automatically transfer any additional funds that aren’t used to pay bills into a separate savings account. If you want to divide these funds further, for example, if you’re saving for a down payment or lump sum student loan payment, you can also choose to do that.
With this type of budget, each time you receive a paycheck, your funds will automatically be designated to the account for their appropriate “job.” The one thing to remember is that it’s important to reevaluate your distributions regularly with this strategy – especially if you’ve had a change in expenses.
60/30/10 Budgeting Rule
If your income exceeds your monthly expenses and saving is a priority for you, then the 60/30/10 budgeting strategy may be a good choice. This strategy is similar to the 50/30/20 budget, but unlike that strategy, this option places the greatest emphasis on savings.
It’s important to remember, however, that this strategy may not be right for everyone. If your income barely exceeds your monthly expenses, or if saving isn’t a top priority for you, then you may be better served by a different strategy.
Envelope System Budgeting
The envelope system is fantastic if you’re concerned about overspending. With this method, you’ll budget by categories – decide how much you want to spend on food, clothing, and so on. From there, you’ll take out the amount of cash you need for the week and place it into categorized envelopes.
Then, when you dine out or make a trip to the store, take cash only from the appropriate envelope. With this budgeting strategy, when the cash is gone, it’s gone! You can take cash out of a different envelope but will be required to reduce your spending in the other category.
Practices to Boost Your Budget
If these budgeting strategies are helping, but your income could use a boost, there are many unique practices you can use to increase your overall budget.
- Open a High-Yield Savings Account: A high yield savings account can help you earn a return on your savings account funds.
- Start a Side Hustle: A side hustle can help you earn a little more money each month, so you can more easily cover your expenses and enjoy some additional budget flexibility.
- Research and Read about Finances: Learning more about different budgeting practices can help you better understand how to maintain and build your budget
- Stay Away from Debt: Paying off debt and remaining debt free are important priorities when you’re working on a budget.
Finding the right budgeting strategy can be challenging, but the payoff is so worthwhile. If you take your time and do the right research, you can discover the budgeting strategy that works best for you.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.