Are you already feeling anxious only at the view of the picture above? Does it echo your personal budgeting experience? Or is the simple fact of putting a budget together giving you nightmares? Don’t worry, you’re not alone. And actually we have good news for you, there are many budgeting styles and strategies available to you. Let’s have a look at which methods you can follow and why.
I don’t have money, budgeting is not for me
Sorry but you’re totally wrong there. It’s actually because you have a limited amount of money that you REALLY should start budgeting. The ultra wealthy may have a financial adviser looking after their investments but they don’t budget. They just spend when they feel like to because they can. Yes it’s unfair but you lose time thinking that way. In fact, budgeting helps making your time and money use more efficient. You may also think that budgeting is boring and involves a lot of calculation and math skills. Wrong again. I am not saying that it will be super easy at the beginning but once you find out the method that suits you, it will become like a second nature. And you will get regular rewards and a feeling of accomplishment when your money is on track.
Here is a selection of budgeting styles:
The Reverse Budgeting Style
Pretty easy, you decide the amount of money you can take off from your paycheck each month and put it on a separate saving account. This method is great if you have a definite project such as saving xx$ for traveling the world for one year. But it may not be ideal if your budget is a bit more complicated to manage. You won’t also get much insight about what you’re spending and on what and definitely no global vision of your budget.
The Envelop Budgeting
With this method, you only use cash and assign a definite amount to each budget category. If an envelops gets empty, you will have to take from another one to top it up. Again simple and straightforward, maybe too much actually. When your budget gets a bit more complicated it may not be that simple to manage.
The 50/20/30 & co budgeting
Some personal finance gurus come up with pre made ratios dividing your money into fixed cost, financial goals and flexible lending. Another way to call it is 50% for the need, 30% for the want and 20% on saving goals and debt repayment. The approach of the need and want is pretty interesting. Of course you need to pay your rent if you don’t want to end up on a friend’s sofa. But you don’t absolutely need to buy the coat you saw last week. Sure it would be nice because it’s new and fashionable but your coat from last year can still do the job. The philosophy is good because it makes you think but the rule is too rigid. When you begin your career you may not be able to save as much as when you will get your first bonus. It’s great to have a general rule but when it may be difficult to stick to it when your personal situation changes or when you have to face an unexpected spending.
The Money Tracking Method
Some people prefer tracking and recording their expense down to the last cent. You don’t have to be that detailed but I personally like this method as it enables to quickly spot where I overspend. Information calls for quick action, you’re now able to think about ways to change the way you spend your money. One year I didn’t have enough money to join my friends on a weekend trip. Then after looking at my bank statements and receipts, I found out that I spent almost $2000 a year for the lunch I buy at the shop next door everyday. I could afford it but I want to do other things with my money. So I decided to cut down to twice a week and take my homemade lunch to the office. Tracking is great but then you need to be able to understand quickly where your money went. You can do that with excel but entering data may be a bit time consuming. That’s when mobile apps such as Quick Money Recorder becomes handy.
There are other methods for budgeting that weren’t covered here. The most important is to find the best for you. As your budget and goals change with time make sure you review your budgeting method regularly. You may think it’s time to switch method when your family gets bigger. Or if you are going through a hard financial time, you may decide to combine the envelop and tracking methods. Yes budgeting may sound hard but I was able to join my friends on a weekend trip the year after and I had a great time. Putting a bit of effort into budgeting was definitely worth it!
Interested in budgeting? Look at what you may have to consider for your budget as time goes by.