There’s no doubt budgeting is crucial if you want to live a healthy, more stable financial life. But how should you actually do that? The reality is that there’s no one size fits all. Here are the seven best budgeting methods you can use:
1) 50/30/20 Budget Rule
Also known as the balanced money technique, this is probably the most known budgeting method. It consists of allocating 50% of your income to your needs; 20% for your financial goals and 30% for your wants. Needs are necessities that you need each month, such as rent, food, groceries, and utilities. 20% should go to savings, investments, and even paying your debt off. Finally, 30% is to be allocated to your wants, such as going out to restaurants, shopping, entertainment, and travel.
2) Envelope Method
Another budgeting option is using the envelope method. For that, you will divide your income into different spending sections, and allocate a set amount of cash to them. Categories can include gas, groceries, education, leisure, etc. When the money’s gone, it’s gone. You can use paper envelopes with cash, or use a digital envelope system in which you have different bank debit cards for each category.
3) Pay Yourself First
This method is recommended for people who want to focus on saving money. More often than not, people leave savings after they paid all of their expenses, and end up not saving at all. Pay Yourself First states that you should designate a portion of your money to savings as soon as you receive your paycheck. You can make the process even easier by setting an automatic transfer to a different account, such as a savings account.
4) Zero-Based Budget
For you to use the zero-budget system, your income minus what you spend or save has to equal zero. Want to learn how to do that? It’s simple. Firstly, you need to write down how much you earn each month. This includes any extra money you do from side hustles. You can use a pen and paper or use an app. Then, write down every expense, such as electricity, water, rent, phone plan, groceries, etc. Prioritize food, utilities, water, and transportation. Also, include how much money you want to save each month. The last step is subtracting your income from your expenses for it to equal zero.
5) Values-Based Budget
This method is for people who want to spend money on things they value the most, therefore spending less money on areas they value the least. The first thing you will need to do is evaluate what you value the most. Do you like to eat out? Is it really important for you to go to an expensive gym? Do you love freedom and the ability to travel, or do you prefer stability and having your own place? After doing this step, you will need to take a look at your previous spending and find areas in which you can cut costs. Constantly track your spending so that you don’t spend money on things you don’t care that much about, so that you can have more things or experiences that you prefer.
6) The 60% Solution
This approach is pretty similar to the 50/30/20 budget, but it says that you should allocate 60% of your income to fixed expenses such as food and clothes, bills, subscriptions, and other essential expenses. The other 40% should be put into retirement savings, long and short-term savings, and fun money.
7) Traditional Budgeting
And, last, but not least, there’s the traditional budget method. For this method, you list all of your expenses and add up to find the total amount. Then find out what your total income is. After that, subtract the expenses from the earnings. The leftover money is how much you can spend on leisure and saving, or investing.
