Unfortunately, the term ‘budget’ is often met with rolling eyes and a gloomy feeling of deprivation of all that’s good in the world.
But it’s much more than a way to scorn you away from enjoying life. The practice can help you alleviate your finances to a better place where you can enjoy your whims and achieve a better financial future.
Budget is just a guiding hand to keep you on the road to reaching your financial goals and living the lifestyle you want.
But sadly, most people struggle with budgeting – it’s not just you. But WHY? One of the main reasons is they choose the wrong budgeting method that doesn’t complement their attitude toward money.
So how can you make it right? How can you stay on a budget and live the lifestyle you want?
Here’s how –
Start with Choosing a Budgeting Method that Suits You
The only way to stay motivated and stick to a budget is if the budgeting method suits your lifestyle and personality.
So, consider the following carefully –
50/30/20 Budget Method
The 50/30/20 budgeting method is one of the most straightforward money management options.
According to this method, you allocate 50% of your income to your needs, 30% to your wants, and 20% to savings and investments. You can use a tool like the budget calculator to compute this.
The strategy is ideal if you want to budget and save money but don’t have the time to track your spending in detailed categories.
Don’t worry if your financial situation doesn’t permit you to spend according to the percentages mentioned. You can optimize the allocation according to your needs.
For example, you can allocate 5% of your income to savings and 65% to your needs. Whatever suits you, do it.
Zero-sum budgeting involves assigning a purpose to every dollar of your monthly income so that you don’t have anything left over every month. Hence the name.
This is a highly detailed and time-consuming approach to budgeting. So, it’s not for you if you’re always short on time or don’t enjoy managing your finances.
I recommend this method to my clients who have incurred high debt due to their off-the-rail spending habits.
For example, when a client comes to us for help with debt consolidation or debt relief, we suggest this kind of hands-on budgeting strategy to avoid impulsive spending, which, most often than not, got them into debt in the first place.
The envelope system has recently blown up online – hundreds of people are trying it, and for a good reason, it’s a highly effective way of curbing overspending.
Under this method, you allot a specific amount of cash to spend in various categories and keep the pools of money in separate envelopes designated for groceries, gas, and other expenses.
However, I wouldn’t recommend using this strategy as a standalone, as keeping your money in envelopes full of cash can be risky. The practice will also prevent you from growing your savings.
It’s best to use this strategy along with other budgeting methods like the zero-sum budget.
Budgeting is personal, so there’s no universal right or wrong here. You can do what works for you.
If some elements from each of the above budgeting methods appeal to you, you can mix and match and come up with a technique that incorporates the best of all.
For example, you can use the 50/30/20 plan to save 20 percent of your income and the zero-sum budget along with the envelope system to account for your spending allowance.
Examine Your Bad Money Habits
No matter how much time you spend each month creating a budget, it will only be effective if you break your bad money habits.
Habits that can work against you include:
- Making small but frequent impulse purchases
- Shopping your feelings
- Paying bills late
- Paying only the minimum balance on your credit card
Adopt Good Money Habits
Once you know your bad money habits, you can work on changing them.
For example, you could set up automatic bill payments and make it your goal to always pay off your card’s last statement balance.
If you can’t automate your bills or don’t want to because your income isn’t steady, you can set up alerts to inform you when a bill is due.
Also, you can look at your bank and credit card statements to determine if you have any subscriptions, you no longer use but are still paying for.
Having good money habits like the ones above will make it easy for you to stick to your monthly budget.
Optimize Your Budget
As time passes, your budget should change to fit the new challenges and opportunities that life brings you.
New expenses may come up if you start a family, buy a house, or reach any other major milestone, and some expenses may go away as you pay off your student loans or curb your impulsive spending.
So, it’s essential you always go back and check your budget to make sure it’s still meeting your needs.
Sticking to good financial intentions can be challenging, especially if you’re not intentional or don’t feel good about the steps you take. So, the best thing you can do is to focus on the positives and make a money plan that works for you and your lifestyle.