Anyone who wants to manage their money effectively needs to have a budget in place. There are numerous ways of creating a budget, and it’s important to know what they are. The more you learn about these budgeting styles, the easier it will be for you to stay on track financially. This article will explain how each method works and the benefits they have to offer.
The most basic method for budgeting involves looking at your budget for the previous year and using that information in the present. It’s important that you revaluate your budget if there have been any changes whatsoever to your expenses or finances. You don’t want to just assume that you can use the same budget. If nothing has changed for you financially from the year before, there is very little work to be done.
The 50/30/20 law is a budgeting method that can work well for most people. This technique is made up of the following components:
• 50: It’s never a good idea to spend over 50% of your total earnings on crucial things like rent, food, car payment, etc.
• 20: Set aside at least 20% of your earnings for savings. This will ensure that you have the money you need for emergency situations.
• 30: You should avoid using more than 30% of your earnings for things like cable subscription, shopping, and general entertainment.
This is definitely one of the better budgeting methods because of how simple but effective it is for most people.
Debt vs. Income Calculation
Those who follow this budgeting technique add up the total amount of their outstanding debts before determining how much of their earnings to use towards monthly payments. It is important that you do this so you know what your absolute limit is. It’s always a good idea to pay as much as possible on your debts so that you can take care of them as soon as possible.
There are lots of budgeting apps and software programs that can help you create a budget for yourself. These tools can make it very easy to figure out how much you need to spend on essential items, and therefore want you can afford beyond that. Take some time to look into the different options you have so you can select one that will really help you. These days a lot of people are using these digital tools to their financial advantage.
This form of budgeting consists of coming up with bold goals for your savings. One of the biggest benefits is that you save yourself quite a bit of time and effort while still remaining focused on your financial health. Make sure that you are realistic with the nature of your goals and of course the timeframe. You want to give yourself enough time to accomplish your goals but not so much that you are tempted to keep putting them off.
With priority budgeting, you consider which expenses are most important so you know which ones to focus on the most. Take the time to write down all of your recurring expenses and rank them from most to least important. Your rent or mortgage payment will probably be at the top, with things like daily cups of coffee and cable subscription at the bottom. This can really help you put things into perspective, allowing you to make the right decisions.
Tips for Following Your Budget
Creating a budget is one thing, but actually following it is another. It can be easy to let yourself slide, so you need all the tips you can get.
• Review it: Take as much time as necessary to review your budget before making any decisions based on it. You might also want to consult with a friend or family member to get a fresh set of eyes.
• Minimize your spending: If you find that you are currently exceeding your budget, reduce or freeze unnecessary expenditures for the time being. There are probably a hundred different ways to do this in your life.
• Get support: If you have a spouse or partner, make sure that you lean on them for help and support. This is something that both of you should be concerned with.
Why is Budgeting Important?
It is crucial that you keep track of your spending and plan out your expenses so that you don’t fall into a pit of debt and misery. Those who do not have a budget or do not follow theirs are far more likely to go deep into debt, period. Spend all the time you need to come up with a budget that you can follow as easily as possible, because otherwise you’ll just end up going rogue again.