Trying to not over spend? Well then, you need a budget. Before I share the four popular types of budgeting methods, let’s break down what a budget is.
A budget is a spending plan where you organize your income and expenses. You use it to help you keep track of your spending. It’s there to help you live within your means, prevent overspending, and helps you reach your financial goals. No, a budget does not have to be restrictive. However, budgeting is not a one size fits all. There are different types of budgeting methods.
Also Read: 9 Healthy Financial Habits You Need to Better Your Financial Future
Here is a quick look at the 4 best types of budget methods:
- The Zero-Based Method is a type of budget where you assign every dollar that comes in with a specific job so at the end you have $0 left to budget. The idea is not to “spend” all of your money. Rather, by assigning every single dollar you bring in a job, now you’ll know exactly where your money is going towards. This method is best suited for people who are very meticulous with their planning. Those that want to prevent themselves from over spending. Those that want to build their savings faster, or get out of debt faster.
- The Pay Yourself First Method is a type of budget where you pay yourself first and then you spend whatever is left over. The key is to send a set amount to your savings before you have the chance to spend it. This method is best suited for people who prefer to be more hands-off but who also want to prioritize their savings and investments. It is also beneficial for people who want to avoid the temptation of spending their money elsewhere.
- The 50-30-20% Rule Method is a simple budgeting method where you divide your income and allocate it into main three categories. The first category, fixed expenses, is meant to cover your bills and other essentials that aren’t likely to change very much. These include things like housing, utilities, transportation, groceries, etc. The second category, your wants, is meant to cover the things you want to splurge money on. This includes things like dining out, getting a manicure, etc. Finally the third category, savings, is the amount of money you put towards your savings, investments, and debt. The percentages are not set in stone and you can adjust them depending on your situation. Personally, I would switch the 30% and 20% because prioritizing your savings/investments/debt is crucial! This method is best suited for people who want to keep things simple, while following a guideline in order to plan better.
- The Cash Envelope Budget Method is where you first split up your total income into different spending categories. Then you take that allotted amount of cash and place it in each corresponding envelope. This method is best suited for people who may be struggling sticking with their budget. The idea is once you spend the cash in the envelope, you do not have anymore money to spend in that category.
Now, chances are when you first start to budget, you will most likely mess up. It takes time to find a budgeting technique that truly works for you. The important thing is to not get discouraged! It is okay to revisit your budget and make adjustments. Play around with these four types of budget methods until you find one that is best suited for you.
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