iSavta | 23.01.2022

Everyone has a love and hate relationship with budgeting.

However, budgeting doesn’t have to be time-consuming or tedious as long as you choose the right method that works best with your specific financial goals and situation.

Here are the five rules to effective budgeting that you can try:

 

1. 50/30/20 Budget

This first rule for budgeting is according to the personal finance rules of thumb. With a 50/30/20 budget, the main idea is that when you set aside 50% of your total income for essentials such as housing, food, and bills, 30% is allotted to personal expenses such as personal care items, travel, and eating, and 20% is for savings, this will allow you to automatically limit your major expenses and still have enough savings to consider yourself financially secure.

By using this method, you might find that the ratio that is a bit different will work best for your specific financial situation. But you have to remember that the combined percentage for personal expenses and essentials should never go beyond 80%.

 

2. Envelope Budget

Envelope budget is the tried and tested cash-based system of budgeting that has already helped a lot of people fight off their bad spending habits and avoid debt once and for all.

This system uses envelopes to represent your budget categories. Every envelope will be filled with the specific monetary amount you can spend on the category. Once the money in the envelope runs out, you will no longer be able to spend any more.

Although it may seem a bit old-fashioned to confine yourself to using cash alone and carrying some physical envelopes around, it has been proven that doing so can lessen your expenses.

 

3. “Pay Yourself First” Budget

This rule of budgeting is considered the simplest out of all the methods on this list. This method requires you to decide how much you will set aside for your savings objectives while the rest of your money can be spent in any way or anything you want. So far, this particular method needs the least amount of oversight and planning.

 

4. Values-based Budget

With the values-based budget, you will be the priority instead of numbers in the budget. This rule recognizes that whatever your income is, you are someone who does some hard work and deserves to use your money for fun.

With this method, all you have to do is list down your values starting from the most important ones, like shelter and food, to the ones of least importance.

You will then calculate each value’s monthly cost and determine how far down your list you can stretch your income. When you can no longer afford all your values, you will have to reduce or re-prioritize the expenses linked with every value.

 

5. Zero-based Budget

In a zero-based budget, each dollar is allotted to a budget category like retirement savings or transportation. When you don’t use up all the money assigned to a particular category, you can roll over the funds to another category.

The method will force you to spend more time every month making a detailed plan for your savings and spending in the next month that will naturally prepare your budget for increased expenses that happen during events like back to school, weddings, or holidays.

 

Choose from any of these rules to determine the right strategy for you.