Budgeting & Saving
Top 3 Ways to Budget Your Money
Zero Based Budget
If you are someone who loves digging in to every detail of your finances and you have a consistent monthly income, the zero based budget method might be for you. Let me explain…
With zero based budgeting, your goal is to give every single dollar a specific job. To do this, first start by writing out your monthly income. The key here is to be as accurate and detailed as possible. Next, you need to list out all of your expenses. Lastly, subtract all of your expenses from your income. This should leave you with zero dollars, hence the name "zero based budget." However, if you happen to have any money remaining after comparing your list of expenses to your income, then it’s time to give that money a specific job.
For example, you could choose to assign extra leftover cash to retirement or a short term goal like buying a new TV. Whatever you choose, make sure that every dollar is accounted for. Whether that be to pay for a certain expense or to fund a specific savings goal, every dollar should have a purpose.
There's more than just one tried and true method we can use when it comes to creating a specific spending plan for our money.
The Envelope Budget
The envelope budget method is a spin on the zero based budget in that you physically assign every dollar to an expense or savings category. Yes, you actually take several physical envelopes, label each one according to spending categories, then withdraw as much cash as you need to fill each of your envelopes which represent all your monthly expenses.
For example, if you determine that your monthly grocery requires $500, you would withdraw this amount from your credit union or bank and place it into an envelope which you label "Groceries." When you head to the store, take this envelope with you and use the cash inside to pay. Once that envelope is empty you are not allowed to spend any more money on groceries until the following month. You would repeat this process for all of your other spending categories.
This method is helpful for individuals who tend to overspend. Having a physical representation of each budget category allows you to visually, at all times, keep track of your spending. If you're a visual or tactile learner, or you've been known to mindlessly swipe your card without thinking, then give the envelope budget a try.
But what about those of you who have tried and failed one too many times when it comes to budgeting? The 50/30/20 budget could be your saving grace.
With this budgeting method, you divide up your paycheck in to 3 specific budget categories: Needs, Wants, and Savings. Next, determine what expenses are assigned to each of these three categories. For instance, the "needs" category should include expenses like mortgage, rent, groceries, utilities, and car payments. The "wants" category could include restaurants, vacation, or entertainment. The "savings" category would include both your short term and long term goals, like buying a new couch or sending money to retirement.
Once you determine which budget category your expenses should fall under, then its time to ensure that only 50% of your income goes to needs, 30% goes to wants, and 20% goes to savings. This method is simple and straightforward, so it would be perfect for someone who is just starting out (or starting over) and is looking for some easy guidelines to follow when it comes to managing their money.
BONUS TIP:When it comes to deciding which budgeting method to choose, remember, a budget should work for you and reflect your unique needs, personality traits, and behavior tendencies. Don't be afraid of a little trial and error. You may start out following one method, but end up succeeding with a totally different one - and that's okay.