How to choose a budgeting system
How to choose a budgeting system
You are unique, and so is your budget. There is not a one size fits all budgeting system, but there are budgeting systems that can fit most. It is important for you to understand your relationship with your money and use specific tactics that help you reach, maintain and keep goals.
To start with, you need to look at your current financial health plan. You can assess your finances here and see how you are doing right this moment. You can tell where you are and where exactly you need to go.
After using the assessment, it should help you determine which budgeting system is right for you. Here are budgeting systems that fit most.
50/30/20 – This system is perfect if you have debt to get paid off. Having debt can feel overwhelming, scary and quite frankly, it is exhausting. Instead of fearing your debt each month, you can organize your money to get that debt paid down without neglecting your other bills.
So, how does it work? You simply break down your budget in this manner: 50% goes towards bills/necessities, 30% for wants and 20% for your debt. It is a pretty generous system allowing for more money for wants over debt, so that is a super exciting aspect. This can also be used as a baseline in conjunction with other budgeting system methods.
Envelope System – If you need a bigger kick to get going on your budget, then the envelope system will offer the rigidity you likely need. Especially if you can’t bare to track every purchase you make, this cash based system could be your key.
It works by grabbing some envelopes and turning your check into cash. Next, you label all your envelopes with categories and choose a limit for these expenses. Examples of categories include: groceries, gas, utilities, entertainment, rent/mortgage, etc. Then place the cash in the envelope and voila! You can then only spend the cash limit on each category for that month.
Some people need to feel and see the cash they are spending to make it more real. Cash not spent can be used for a vacation fund or to pay off more debt!
Pay Yourself First – Perhaps you work better with a little reverse psychology. Paying yourself first means you put savings first in your budget. Consider developing savings with titles like “retirement” and “emergency fund.” Then, when you get paid, put money into those accounts first before any bills are paid.
With this method, you can still combine it with the 50/30/20 method to determine exactly how much you should pay yourself. Saving money is huge and should be put at the forefront of any budgeting plan.
Zero Based Budget – Spend too much money? Ready to pull back the reins and get right with your budget? The zero based budget is going to force you to spend every last penny of your budget, but in a meticulous and constructive manner.
The goal here is to give every penny a purpose. Whether it goes to a utility bill or a retirement fund, you will be deciding on a purpose for each penny spent or used. Of course, there are plenty of apps to help you plan for this type of budgeting.
What if you are still not sure?
It’s ok to be uncertain about your budgeting strategy. Some people make up their own method or use a combination of a few strategies. Whatever the case may be, the bottom line is that you need to be fully aware of your income, debts, goals and general spending. Living outside your means will put you into more debt than you can handle.
What you can do, is try some of these methods in a trial period. Give yourself plenty of time to research and attempt a method. If you fail, don’t be hard on yourself. Just brush yourself off and try another strategy.
Remember, you might just need to pick the strategy for you. Some people get so wrapped up and confused in technology that they forget they can go back to pen and paper. For some, the old fashioned method is tried and true. Do not think for one moment that you need to be technologically savvy to be consistent in your finances.
Lastly, remember that unless you win the lottery (which has horrible odds), you likely will not pay off your debts quickly. Get your mind set for the long haul and choose a budget that you makes you feel most comfortable.