How Can You Budget?
When one thinks of the income he earns and his expenses, then it is quite challenging to determine what goes where. Everyone has had times in their life when they have spent their entire income all at once without even thinking about it. It may sound fun, but it can be harmful in the long run. No one would like to get into debts or remain helpless in case of an emergency.
Smart budgeting can help you consolidate your debts by allocating a certain amount of your income to paying your bills and the rest to either spending it your way or saving. There are various budgeting methods, but this article talks about the 5 easiest ones.
1. The 50/30/20 Rule
In this simplified budgeting technique, you break down your income into three broad categories:
- 50: No more than 50% of your pay should be spent on paying bills and other necessities.
- 30: A minimum of 30% should be spent on luxuries such as entertainment and dining out.
- 20: You should set aside 20% of your income for either savings or paying debts.
2. The Envelope System
This method is very simple to implement. All you need to do is calculate all your expenses, including bills, groceries, rent, and school fees. Subtract these expenses from your salary and put each payment in an envelope. Label each one of them and whenever you receive a paycheck, pay them from the cash present in each envelope.
It is a basic way to make sure you have enough money for all your expenses. The money that is left is all yours, and you can either spend or save that.
3. Digital Budgeting
There are many apps online that help manage household finances. Many apps are also free to use with a lot of budgeting tools.
Yodlee is an example of such an app. It allows users to set budget goals for their spending which it monitors and sends the users an email to notify them if they are close to their spending cap. This service also sends a status report at the end of each month.
4. Snowball Budget
First of all, start with calculating how much money you owe on all your debts. When you have that amount, think how much money you will be allocating to monthly payments to get rid of the debt.
Once you have your budget in hand, start by paying your debt from the leftover money in your budget, beginning with the smallest to the largest debt.
5. Reverse Budgeting
This technique focuses only on one thing, and that is establishing saving goals. Instead of calculating your expenditure, create saving goals.
As long as you achieve the goals you have set, it is your choice on how and where you spend. This method only emphasizes one thing, and that is accomplishing your saving target.