3 Different Ways To Budget: What Is Your Budgeting Style?
One of the reasons why many people shy away from budgeting is because it can seem tedious, annoying and perhaps even difficult. As result, they struggle with being successful creating and/or sticking to a budget.
However, there are a variety of different ways in which you can budget and your success with budgeting can be greatly improved by the budgeting method or style you select. The method you choose is entirely up to you, the most important part is picking a style that works for your life and one that you (can grow to) like even if you currently hate budgeting!
"Your success with budgeting can be greatly improved by the budgeting method or style you select."
If you are still trying to find a budgeting method that works for you, below are a few different methods that you can consider.
1. Budgeting with the envelope or cash system
This works by subtracting your expenses from your income and then putting each expense amount into its own envelope. This would include things like bills you need to pay and your day to day expenditure.
You can keep the money for your big bills in virtual envelopes that you track through a spreadsheet (check out the Clever Girl spreadsheets) or an app and then put actual cash for your smaller expenses or day to day transactions in actual physical envelopes.
Once the envelope for a particular expense is depleted, you can no longer spend any more money in that category unless it is an emergency. If you don't spend all the money in a particular expense envelope, then you can repurpose the funds towards something else like savings or debt.
2. Budgeting using percentage breakouts
The most common being the 50/30/20 breakout. In this method, you break your income into percentages and then plan out your spending and savings accordingly.
- No more than 50% of your income would go towards your needs and essentials so things like housing, transportation, food etc.
- No more than 30% of your income would go on wants and non-essentials for instance travel, getting your hair done, shopping etc
- At least 20% of your income would go towards savings and debt repayment.
Keep in mind that these percentages are not set in stone. For instance, you can choose to spend less on the needs & essentials and wants & non-essentials categories and put more into savings or debt repayment.
So, for example, you can select a 35/30/35 breakout, a 35/35/40 breakout or even a 25/25/50 breakout. The goal is setting percentage breakouts that make sense for you.
One important thing to keep in mind is that regardless of what breakout your choose, you want to be mindful of spending more than 30% of your income on housing alone otherwise it can get harder to put money towards your other financial goals.
3. Taking the anti-budgeting or reverse budgeting approach
In this method, you focus on a single goal such as paying off a certain amount of debt or saving a certain amount of money each month in addition to paying your bills.
And then as long as you meet your monthly goal and pay your bills without exceeding your income, you can do what you like with the money you have left over.
- Using a spreadsheet or an apps to set up your budget
Spreadsheets or apps? Which should you use? The answer is - use what works best for you and makes it easy for you to keep up with your budget.
Some people love spreadsheets, they don't have to worry about bank security, or what's happening with their personal information and enjoy getting really close to their numbers.
If you enjoy budgeting with a spreadsheet but are worried about being able to access it when you are not home, Google drive makes it easy for you to upload your budget spreadsheet for easy access on your mobile devices.
Apps, on the other hand, can make it really simple to budget especially if you can connect your bank accounts to them so your transactions can be tracked automatically.
These days most apps have extreme levels of security although sometimes there can be delays in when your transactions are updated and they are not always as intuitive as to how to properly categorize transactions which will require you to spend some time setting things up.
That aside, for the most part, all you'll really need to do once things are set up, is check-in frequently to ensure your transactions are tracked the right way and set up alerts to keep you on top of your budget.
Whether you choose a spreadsheet or an app, you can set up your budget to be reflective of any of the above budgeting methods.
- How to budget: 4 Categories to plan your finances
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Bola Sokunbi is the founder of Clever Girl Finance and she's passionate about helping women take control of their money so they can live life on their own terms.