Having a budget is important, but there are many budgeting methods out there, each with a following that swears that it’s the best one that will make you financially successful. While financially successful people almost always use budgeting methods, there are a variety of methods that can work for you. When you find the one that works best, you are more likely to follow it.
Save First (80/20) Budgeting Method
This budget starts with the idea that you pay yourself first. Take your monthly income, allot 20% for savings, and the remaining 80% is what you have to work with for the rest of your budget. How you allocate the rest of the money is up to you. This budget works well if you know your spending is in control and you know that your expenses are more than covered by the 80%. Otherwise it can get a little risky.
Need/Want/Save (50/30/20) Budgeting Method
This budget takes your expenses and breaks them into three categories: expenses you need (50% of your income), expenses you want (30%), and savings (20%). Earmarking 20% for savings is easy, and you can allot that into different accounts if you prefer. Dividing needs from wants is where things get tricky, but consider that needs are only things that are vital. Rent or mortgage is a need. Heat is a need. Electricity is a need. Food is a need, but not all food is a need. Basic groceries? Yes. Snacks and meals out? No. This budget will work for you if you are good at separating the necessities from the extras and can be very honest with yourself.
If you like the idea of this method, but don’t think that the percentages work out for you, that’s ok. You can adjust. These are the percentages that are recommended, but if you are just beginning to budget, it may take a few cycles to get yourself on track.
Zero Based Budgeting Method
The goal of a zero based budgeting method is to take the amount of income you earn monthly and allocate money into different categories (savings, food, utilities, mortgage) until there’s nothing left and you zero out. Every dollar is allotted for, and every dollar has a job. Some people refer to this as the “envelope system”. As long as you are allocating for savings, this can be a good method to understand where your money goes each month.
Spending Ceiling Budgeting Method
The idea of a spending ceiling is that you put a cap on your spending every month. You don’t need to worry about categorizing every single expense, but you track your outgoing expenses. When you hit your ceiling, you’re done for the month. A good way to start this is to track your expenses for a few months. Look at your average spending, add 10% for a buffer, and that is your ceiling. Obviously, some of your money should be going into savings as well, so make sure you factor that in.
Comparing the Budgeting Methods
How do you choose? The best way to start is to take an honest look at your lifestyle and income. Are you naturally frugal or are you a spender? Are you organized enough to track every dollar, or do you need a more general budget with some wiggle room? Budgeting can be hard to get started with and you don’t want to set yourself up to fail, because any budget is better than no budget at all.
Sorting through all the budgeting methods can be tiring. There are many more out there, some very specific and some that are almost anti-budget, and sorting through them to find the right fit can take time. Many of us don’t like having a mirror held up to our spending, forcing us to look at our habits and identify the issues we may have. But when you are honest with yourself about your money matters and find the right budgeting method for your lifestyle, you will be well on your way to financial success. For more tips on how to save and live a debt free life, contact Safe Money Partners.