Does budgeting make you feel trapped and confused? If you are new to budgeting, it can seem stressful and daunting.
You may be thinking, “Why would I confine myself when I can spend freely?” Maybe you need some budgeting tips for beginners.
However, budgeting can lead you to financial success and help you live a debt free life. If you are in debt or stressed about not having an emergency fund or retirement fund, planning a budget is the next step in preparing for your financial future.
In fact, maybe you are having difficulties with budgeting and financial planning because you haven’t found the perfect budget for you. Creating a DIY budget can be stressful and downright scary. However, consider the fact that maybe you haven’t found the right budget.
Because there are several types of budgeting systems and by trying just one, you may be doing yourself a disservice.
Traditional budgeting may not be your thing. Yet, it is best to find the perfect budget that works for your lifestyle and luckily there are different ways to keep track of money.
Remember the saying, “If you fail to plan, you plan to fail.” – Benjamin Franklin? Good old Benny F. had it right.
This is true in life and in financial planning. I am a firm believer in the fact that if you don’t have a plan, you are setting yourself up for failure.
Not to mention, what works for your friends and family may not work for you. Yes, your friends and family have ideas on how you can save and pay down debt. They mean well, but you can try different budgeting methods and find the best budget that works for you.
Budgeting is not a one-size-fits-all process. There are several ways to budget and finding one that works for you is key to being successful.
So what now?
If you don’t like the way your current budget is working for you or find it confusing and hard to stick with, then try one of the other options below.
There are many reasons to budget your money. On top of my list is having less money stress and being able to save for your financial future.
Some feel confined by a budget, yet budgeting will help you prepare for your financial success. Believe it or not, not all budgets are confining. Some allow more freedom than others, but it is best to know budgeting basic so you can afford your lifestyle and avoid debt.
Best Reasons to budget:
- save money
- save for an emergency fund
- pay off debt
- save for retirement
- financial security
- less stress
- no late fees
- live better
- Meet your financial goals
How to Budget Basics
The above mentioned are reasons to use a budget. Yet, if you have never been taught to budget, it may seem confusing and time-consuming.
With a budget, your main goal is to make sure you have more money coming in than going out. Generally, you want to be able to save money on top of paying bills.
With a budget, you will focus on paying bills on time, setting aside money for an emergency fund, and saving for retirement and/or things you want. Budgeting will allow you to eliminate the use of credit cards and live debt free. Your best budget will also help you pay down debt if you already have credit card debt or student loans.
7 Bests Budgets that are Perfect for You
Traditional Budgeting Method
With a traditional budget, you will set aside time to write down your monthly income. You will also write down your total bills and section them into categories. Then total your amounts to find if you have more money coming in than going out.
If you are paying out more than you make, you consider cutting back in some areas or finding a side hustle to support your lifestyle.
Examples of budget categories:
Some prefer to write out their own budget using pencil and paper and others use a spreadsheet such as Excel or google sheets. If you would like a visual you do not have to look up on the computer you can download this free budget template pdf to get you started.
Made popular by Elizabeth Warren – Harvard Bankruptcy Expert and U.S. Senator from Massachusetts, the 50/30/20 budget divides your money up into spending categories. Warren coined the term “50/30/20” while helping teach her daughter, Amelia Warren Tyagi, about money and they co-wrote the book “All Your Worth: The Ultimate Lifetime Money Plan.”
You can check the book out here.
Is the 50/30/20 method of budgeting right for you? Let’s find out…
The 50/30/20 budget involves spending and saving based on the amount of money you make. First, you must reduce your “needs” to equal 50% of your income. After determining your after-tax income, you will then spend no more than 50% of your income on your needs such as housing, utilities, and transportation.
In this budgeting method you will allocate your money according to the following areas:
50% – Needs (Food, Housing, Utilities, Transportation, Insurance)
30% – Wants (Shopping, Eating Out, Hobbies, Gym)
20% – Savings
As you can see, you account for your total income using the percentages listed for needs, wants and savings. This budget allows more flexibility than a traditional budget in that you have 30% of income to spend freely. Since you are already saving 20%, you can use your extra money to do with what you wish. Yet, the key to this type of budget is to make sure your needs are at or around 50% of your total income.
If they are much higher you can scale back or adjust your spending as needed until you can pay down debt or bills.
As you can see, you are able to save money, but since you are using the 50/30/20 method you are still able to spend and this type of budgeting leave you feeling less confined as a traditional budgeting method.
This is similar to the 50/30/20 however in this type of budget, you will allocate 20% of your money towards savings and everything else is fair game. However, don’t go on a spending spree just yet. You still need to account for bills in your “needs” categories.
This budget is best for people who do not like to feel confined to a budget.
Try setting up savings automatically and put your 20% away. You can divide your 20% up into savings categories or sinking funds as needed. Here are some areas to consider:
- emergency fund
- down payment
The pros of this type of budgeting are that it is not confining, but you are still able to save. It makes it easier than the 50/30/20 since your cost of living may be higher than 50% of your income. You are more flexible.
Yet, the cons are you may not be left for much “fun money” if you have a high cost of living or “needs” expense costs.
Related Financial Posts:
- How to Enjoy Luxuries in Life (On a Budget)
- 6 Simple Tricks to Help You Stick to Your Budget
- 75 Frugal Living Tips That are Surprisingly Easy
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Budgeting Tools and Apps
If you are not into creating your own budget, fortunately, there are many tools and apps that can help you. These apps make it so simple you don’t have to track anything or calculate. You simply plug your numbers into the app and it will do the work for you. These apps can also be connected to your bank accounts and retirement accounts.
Some of the most popular budgeting tools and apps are as follows:
- personal capital – Manage your accounts and set spending goals. Find out more about personal capital here.
- Digit – Save money without thinking about it. Find out more about Digit here.
- Trim – Trim will help you save money on your bills and set up a savings plan. Find out more about Trim here.
- Credit Sesame – Learn how to manage your credit. Find out more about Credit Sesame here.
A zero-sum budget is a type of budget where every last penny is accounted for. If you aren’t into traditional budgeting, this may not be the best option for you. However, if you are disciplined with money, a zero-sum budget may be your thing.
In this type of budget, you must account for and spend every dollar. However, spending every penny may not be what you think. You are essentially using up every dollar and directing your money for a specific purpose.
The reasoning behind this is that if you have an extra $500 at the end of the month, that money will most likely get wasted or spent. However, if you assign each dollar a job such as savings, investing, and other budget categories, you will be less likely to waste money.
To start your zero-sum budget, create a plan of action:
- Track Spending – Use a spending journal to determine how much money you spend each month. Keep track for at least two months to get a fair estimate.
- Create a List – Make a list of spending categories to use for your budget.
- Assign your money – Assign every dollar to a category
- Cut Back – If you notice you are spending a lot of money on food, try scaling back a few hundred dollars and put that money in your savings category.
- Re-evaluate – After a few months, re-evaluate your spending and make changes to your zero-sum budget as needed.
Related Finance Posts:
- How She Paid Off $40k Worth of Debt
- 7 Steps to Completely Get Rid of Debt for Good
- How to Save Money From Your Salary
- Swell Investing Review
- 7 Things are Killing Your Budget You Must Stop
Pay Yourself First
When you budget, you should always pay yourself first. The best way to pay yourself first is to set up a tax-sheltered savings plan through your employer. In this way, your money will go directly in your account before you pay the government. Many companies offer a 401k or 403b depending on where you work.
You can easily set up one of these accounts by contacting the Human Resources department of your employer or find out if there is a company your employer works with. They will typically do the work for you in setting this up.
Typically, you fill out a form requesting a percentage of your paycheck to be deposited into your tax-sheltered savings plan. As long as you keep the money in the account until you retire, you will avoid paying taxes.
You can combine this type of budgeting system with the 80/20 or the 50/30/20 budgeting system. It helps to calculate how much you can save and still pay your bills. However, with both of these systems, you are still saving 20% of your money. If you can put at least 10% in your retirement fund and use the other 10% for an emergency fund that is easily accessible, you will be on your way to financial success.
Cash Envelope System
The cash envelope system is a way to help you pay for your expenses in cash instead of relying on credit cards. In this popular method, money is set aside in labeled envelops for specific budget categories. For example, your envelopes would read groceries, clothing, entertainment, utilities and so on.
With this method, you are not able to go over budget because you are only bringing cash when shopping. You are forced to stay within your budget in a store as opposed to buying more on a credit card.
Only take out the cash you need for expenses and put the rest away in savings. If you are looking for a bank that is insured and has a high-interest rate, click here.
7 Ways to Create an Absolutely Perfect Budget for You Conclusion
If your budget isn’t working, it is time to reevaluate. Try a different system of budgeting until you find one that works with your wants, needs, and financial goals. Start learning personal finance and save money for a bright future. Budgeting doesn’t have to be hard. Fortunately, there is more than one way to budget so pick the one that best suits your needs.