3 Tips to Help You Budget
For many people, a budget is something that limits them and keeps them from spending their money. On the contrary, a budget gives you spending power. It makes you the boss of your money.
But to get to the boss level, you need to learn a few things. And that is the purpose of this post.
What Is a Budget?
A budget can be described as a plan. It doesn’t restrict you—it allows you to direct your money. You know what you make and how you spend it. You’ll no longer sit wondering where all your money went.
Why Budget?
Budgeting Benefits
Having a good idea of how you spend your money allows you to achieve your financial goals faster. You will not be struggling to pay bills despite the fact that you earn enough. With a plan of your expenses and income, you will know how much is flowing in and how much is flowing out. And it also lets you adjust your spending.
Who Is Budgeting For?
Everyone should budget. Every single person can benefit from knowing what they make and how they spend it.
Budgeting Methods to Use
50/30/20 Rule
With this method, your income is divided into three categories: 50% goes to needs, 30% to wants and 20% to savings. It may appear great but you only get to save 20% for debt payment, retirement and other things. Achieving your goals will take longer with this method.
60% Solution
With this method, 60% goes to committed expenses. The remaining 40% is divided as follows: 10% for fun, 10% is for long-term savings, 10% goes to irregular expenses savings and 10% to retirement.
You may think that this method makes things simpler but a lot of categories are clumped together. It gets complicated when you try to use it.
Reverse Budgeting Method
Just as the name suggests, you save first, then deal with spending. So when you receive your income, you set aside savings, then budget for expenses with what remains.
The Zero-Based Budget
This method aims at balancing your income and your expenses so that the difference is zero. What comes in is what goes out.
This means budgeting for every single dollar. Instead of wasting that extra $5, you assign it somewhere. Make sure you have something in your checking account though.
What Should Be in Your Budget?
Your incomes and all of your expenses.
How to Start Budgeting
Budget Percentages
Percentages will not be the same for everyone. It depends on your situation. But as a rule of thumb, your housing should be 25% or less and make a point of giving 10%.
Setting up the Budget
- Note down your income.
- List all expenses.
- Use your preferred budgeting method.
- Monitor your expenses.
Budgeting with Irregular Income
If your income changes every month, base your budget on the lowest estimate. You can always adjust when you receive your income.
Fluctuating Bills
If some of your bills aren’t constant, always use a higher estimate.
Unexpected Expenses
Emergencies come without knocking. So you better be prepared. Create an emergency fund. You could start with $1000.
