Four Common Budgeting Methods

Create a monthly budget to track your income, expenses, and savings. This will give you a clear picture of where your money is going and help you identify areas where you can cut back or save more.
There are four major methods for personal budgeting. Try them out and figure out which one works best for you.
 
The 50/30/20 Budget
This method divides your income into three main categories; needs, wants, and savings. 50% of your income should be expenses you can’t avoid, like housing, food, basic utilities, minimum loan payments, and transportation. 30% goes into the wants bucket, items that aren’t essential to living and working, and are often more fun. These expenses include entertainment, travel, meals out, and monthly subscriptions. The last category is 20% into savings or additional debt payments.
 
The Envelope System
This method is great to avoid overspending. You start by labeling envelopes with budget categories. It can be as simple as needs, wants, and savings, or break it down to utilities, transportation, movies, meals out, coffee, etc. Each month divide your income into envelopes, starting with your needs. When you make a purchase, use the cash from the relevant envelope, but once that cash is gone, you can’t spend any more in that category until next month.
 
Pay Yourself First
This is a reverse budgeting method where you focus on your savings goals, but not at the expense of your necessary payments. What are your savings goals? A rainy day fund, a big trip, and new appliances and housing items are some of the common expenses people save for. Next, determine how much you can put into savings after you’ve paid your ‘needs’ expenses for the month. Setting up an automatic transfer will help you stay on track, and you can always adjust accordingly.
 
Zero-Based Budget
This method puts every dollar to work. Starting with your necessary payments, list all your monthly expenses in a spreadsheet or budgeting app. Add all your expenses together and subtract them from your monthly income. If your total is a negative amount, then you need to access some areas where you can cut back to make that total zero. If it is positive, allocate those extra funds to savings or an ‘other’ category.
 
Budget Notebook

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