06 Nov Find the right Budget for You
The idea of budgeting is enough to fill many of us with dread. If numbers aren’t your thing, the idea of planning out every expense month after month can seem draining, but fear not – budgeting doesn’t have to mean obsessively counting every penny, it’s just about finding the method that works for you. Fortunately, there are plenty to choose from – below are some popular budgeting solutions you might want to try.
The 50:20:30 Budget
Rather than budgeting for each individual expense, this budget involved spending a set percentage on your income on three different categories: needs, savings and wants. 50% of your income is set aside for necessitates, such as rent or mortgage payments, utility bills, and basic food, 20% is spent on savings or paying off debts, and the remaining 30% is spent on ‘wants’, such as eating out or buying new clothes.
This can be a good solution if you want to achieve greater control over your spending but don’t want to count every individual expense. Having only three categories to think about can simplify the budget, making it easier to keep track overall. If you decide to try this budgeting method, you might want to be careful not to overspend, and be careful about which expenses go into which category.
The Cash Only Budget
This budget does exactly what it says on the tin. If you find yourself splashing the plastic more than you would like, this could be the right budget for you. It involves withdrawing cash for each expense, and organising it into different envelopes or jars. For example, when you go food shopping, you only take the ‘food’ envelope with you, to ensure you have no choice but to stick to your budget.
Only spending cash can be a good solution if you find it difficult to keep track of credit and debit card transactions, since you can literally see how much money you’ve spent, and how much remains. People who are prone to overspending might find this type of budgeting helpful. However, if you tend to lose physical cash, it might be better not to risk it, and try an alternative method. This budget also takes a certain amount of self-discipline, so as not to borrow from one envelope to increase spending on luxuries.
The Zero-Based Budget
In the zero-based budget, each and every pound has a job. If you enjoy micromanaging your funds, this could be the budget for you. The object of this budget is to end up with an account balance of zero at the end of every month, by using all of your income. Disposable income is put towards savings or debts first, then, finally, non-essential or fun spending. Budgeting in this way ensures that your savings grow, as you are forced to transfer a set amount into a separate account rather than let it sit in your current account and risk being spent. On the other hand, a budget such as this leaves very little wriggle room for accidental overspending or emergencies. It might be a good idea to leave a small amount of money in your account as a sort of buffer. If you are prone to overspending or impulsivity, this might not be the right budget for you.
The 60% Solution
This budget can work well for people with a slightly higher income. It consists of spending 60% of your income on all bills, rather than breaking them down individually and leaving the remaining 40% for other expenses. The solution recommends splitting this 40% between a retirement fund, short-term savings, long-term savings, and ‘fun money’.
If your bills come to more than 60% of your total income, this might not be the budget for you. However, it is possible to adjust the percentages to fit your own needs. For example, if essential bills account for 80% of your income, you might spend 5% on each of the four suggested categories instead, or rejig your spending until it is sustainable. This budget can prove a good option as it removes the necessity of accounting for every little expense whilst still allowing you to keep track of your spending and build up savings.
“No budget?” I hear you cry! But, unlikely as it may seem, some people manage their money better without a formal budget in place. By checking your account every day, and spending and saving on a daily basis, you can manage your money dynamically. This can be a great option if you’re not prone to overspending, and want a solution which allows for flexibility. It can be better for building up savings than some formal budgets too, since during months where your overall spending is lower, you can decide to dedicate a greater amount of cash to savings accounts.
Do what’s right for you
Of course, no two people are the same, and any of these budgets can be adapted to better suit your needs. Whichever solution you choose, keeping track of your income and outgoings is the single best thing you can do to improve your financial situation.
For more information about how you can use budgeting, and other solutions, to help pay off your debts, click here.