Managing spending and saving can be an ongoing challenge, regardless of how much money you make. Creating a budget is often the first step toward taking charge of your money and having enough left over to save and invest. A number of budgeting methods are workable options, with each method offering various advantages that can be appealing. But which method is right for you? Whether you prefer the old-fashioned hard-copy spreadsheet method or you like the idea of seamlessly tracking your spending on a mobile app, implementing a budget is an effective way to manage money, track spending, and start build your savings.
Dave Ramsey developed the cash-only envelope system as a way to allocate specific dollar amounts for different categories of spending. For example, if you budget $100 each month for restaurant spending, you would place this amount of cash into an envelope labeled “Restaurants.” As you proceed through each month and spend money on various expenses, you will take the money you set aside for that expense out of the envelope as you need it. When the envelope is empty, spending for that category is finished for the month. If you have cash left over, you can either reward yourself with extra spending or save it.
50-30-20 Budgeting Rule
The proportional budget model involves creating guidelines for spending and saving based on percentages of income. With the 50-30-20 model, you would allocate 50 percent of your income on needs such as groceries and other necessary expenses, 30 percent on discretionary spending to purchase wants, and the final 20 percent of your income for savings and to pay off debts. This budget model involves careful thought about the differences between needs and wants. It’s also helpful to adjust the ratios to fit your specific needs, perhaps decreasing discretionary spending and increasing the amount of money allocated for savings and debt.
Mobile apps have revolutionized the process of tracking spending. Apps are simple to install on mobile devices, making it possible to take budget information with you wherever you go. You can input account information, set spending parameters, and enter transactions as you make them. Mint is one popular mobile budgeting app, enabling users to create budgets, link accounts, and input transactions. Mint also shows warnings when expenditures approach spending limits.
You Need a Budget
The You Need a Budget (YNAB) method was created by Jesse Mecham in 2004 as a modified version of the envelope system. It focuses on one principle rule: give every dollar a job. At the end of the month, you will be able to look at your budget to see where every dollar went, whether it’s needs, wants, debt service, investment, or saving. Programs and apps are available that work well with this method, making it easy to sync transactions across all devices. Anyone interested in this budgeting method may benefit from taking a specialized YNAB course that offers full training to learn all of the philosophies of this budget strategy.
Someone new to budgeting might begin with prioritized budgeting. With prioritized budgeting, you create a master list of monthly expenses, with the most important expenses at the top and the least important ones at the bottom of the list. This exercise is useful because it forces you to explore all of your expenses, assigning a level of priority to each. With the created list, you then allocate funds for each expenditure. If necessary, you can eliminate the least-important expenditures to make sure you have enough money for the important things.
Some people work best using a good old-fashioned spreadsheet. Using a paper or digital spreadsheet for budgeting involves recording every expense and transaction in a ledger and subtracting these amounts from your balance. It may be necessary to carry a notebook with you during the day to record your spending. You would then transfer the transactions to your spreadsheet each evening. It’s important to be disciplined with this method, writing down every expenditure and checking your calculations for accuracy.