Yesterday I wrote a brief post referencing budgeting. I know, that mean old word terrifies a lot of people. But, I ask, do you really know where your money is going every month? Did you take the time to write it all out?
If you don’t know where all your money is going every month, better yet, every two weeks, maybe it’s time to find out. As it turns out, there are several ways out there to do a budget. Also, there are a lot of apps that can make budgeting easier for you and help you keep track of your payments every month. The reason for so many budget types has to do with the fact that not everybody spends their money in the same way.
So what exactly do you think a budget is? Have you ever actually thought about it before? I know budgeting sounds sooooo totally boring! Truth is, it really isn’t. Once you get the hang of it you will have small successes, which will ultimately lead to bigger successes. Basically put, budgeting is telling your future money exactly where it is going to go.
Now, there are a few simple questions you need to ask yourself before you sit down and do this budgeting thing. The most important part of these questions is for you to be completely honest with yourself. Some of the answers may even be a little hard to admit, but that’s okay. That’s why we’re doing this. In order for a budget to successfully work for you, you need to fully understand who YOU are as a spender.
The main question which encompasses several other questions is actually the hardest question to answer. What kind of a spender are you? There is a wide array of spending types. Are you the kind of person that just swipes your card through a machine and think, “Well, it went through, so that’s good”? Are you the kind of spender that when you have cold hard cash on hand if literally feels like it is burning a hole in your pocket? Are you kind of spender that thinks consciously before swiping that card about how much was in your bank account before you swipe it and how much will be left once you do? Are you the kind of spender that logs every transaction? Lastly, are you the kind of spender that when you have cash on hand you think, “Do I really need that candy bar?” These are important questions because the one you answer yes to will define which kind of budget will work best for you.
Below I am going to introduce five different budgeting styles. There are more than that, however, these are the five most common. These are the five that seem to work for most everyone, though not necessarily are they one size fits all options by any means. It’s just a start to help you think about which options out there might be the best for you.
1. ENVELOPE BUDGETING
This method of budgeting is good for those that can visualize their spending habits by having cash on hand. Those who don’t feel the desire to spend money just because it is readily available. If it feels like your money is taunting you and teasing you, saying you need to spend it just because it’s there, then this method may not be the best option for you.
This method works with a series of envelopes. Each individual envelope serves a specific purpose. You simply write a category on the envelope and place a specific amount in the envelope to cover that specific expense. Some common envelope titles used are Rent/Mortgage, Electric Bill, Water Bill, Cable Bill, etc. Make sure to make one for each expected expense, which includes things such as gas money, groceries and eating out. Be realistic in the amount of money you put in each envelope. As you place money in the envelope keep track of the amount on the outside. As you remove money from the envelope keep track of that as well.
The beauty of this system, you can actually see how much money is being spent and what it is being spent on. If you’re looking to create a savings, don’t forget to make an envelope for that as well. Once the end of the month hits, you can review your notes on the outside of the envelope and see where you didn’t put aside enough and where you drastically overshot. Now you can take that knowledge and rework your envelopes for next month.
2. DIFFERENT ACCOUNTS (AKA BUCKET BUDGETING)
This method is basically creating a “bucket” for certain larger categories. It is usually comprised of three accounts (two checking and a savings).
You create the primary checking account to use for your fixed expenses. These expenses are the ones that you pay every month that are generally the same amount every month such as rent/mortgage, car payments, credit card payments, and utility bills. Basically, any bill that you pay every single month goes into this category and you put enough money into this specific account to cover these particular expenses.
The next account you create is a savings account. Every month, or every paycheck you set aside a specific amount of money to go into this account. This is the account you should try not to touch or use except for specific reasons. Are you saving to buy a car? Are you planning a trip? Do you want this savings account to only exist for emergencies? Think about what this account is going to be used for when deciding how much to place into it every month.
The second checking account is for daily living expenses and extras. You would find groceries, entertainment and eating out in this category. Other things that might fall into this one are clothing purchases, allowances for the kids, or a family outing.
3. ZERO BASED BUDGET
This budgeting method is just what you see in it’s name. Zero based. What this means is that you factor every last cent of your take home pay. For example, your bring home pay is $1233.15. Of that bring home amount (which is the amount after taxes) every single cent is planned for until you hit a balance of zero. Dave Ramsey, who is an icon when it comes to budgeting and how to live the life you’ve always dreamed of living, explains it best. Go to this link here to get further information on this budgeting technique.
A great quote from Dave Ramsey… “Live like no one else, so you can live like no one else.” Ponder on that nugget of knowledge right there.
4. BALANCED MONEY
Balancing your money in a budget is basically a percentage formula. There are a few different varieties on this one. The most common being the 50/30/20 method. I can see you thinking, “What on earth does 50/30/20 mean??” It’s actually quite simple. The 50 means 50% of your income is spent on needs. The 30 means that 30% of your income is spent on wants. Finally, the 20 means that 20% of your income is put into savings. This balancing of money can be hard for some people because of the 20 on the end. If you want to be deeply invested in saving money, then this option is the way to go. However, you may really need to cut back on some of those wants to make this a viable option.
5. CREDIT CARD BUDGETING
This last option is not really a favorite of mine, though it is common. If you’re lucky enough to have a high credit card limit, and are capable of responsibly paying it off every single month then this option can work for you. Plus if you have a credit card that offers cash back you can rack up the savings. You only get charged interest if you don’t pay off in full before your next due date. You also receive a statement every month in regards to what you used the card for.
Please note that if you are not good with credit cards, and tend to swipe freely this option is not going to do you any favors. Credit cards are a major responsibility and need to be used wisely.
Like I mentioned before, these are just five of the budgeting options available out there. Please give them some serious thought before just jumping in and using one. Which type of budget you choose will be based on the answers that you gave to the previous “What kind of a spender are you?” question. Be honest with yourself during this process and you will definitely come out on top!
Thanks for stopping by!