6 Easy Tips You Should Follow if You Hate Budgeting
Doesn’t it feel like there are too many rules when it comes to managing your money? The bank teller gives you a tip. Then the financial guru (like a Suze Orman or Dave Ramsey) on the evening news offers their own wisdom. And it often seems to contradict! Well, here’s the good news – the rules, although good, don’t work for everyone, and you shouldn’t feel obligated to listen to everyone (you will get confused). Rather, what you need is a fuller menu of budgeting tips, which you can choose to suit your own circumstances. After all, no one has the same personality and finance situations, so why should you follow some advice that doesn’t make sense or just makes you miserable?
How to Budget Your Money 1: A Numbers Game
The first set of budgeting tips to look at are those defined by numbers. These strategies were written in the form of ratios, to give you a sense of how simple sticking to your budget can be. With that said, don’t feel obligated to follow a tactic if it doesn’t appeal to you.
One of the more popular budgeting techniques out there is the 50/30/20 rule. It works like this: 50% of your budget goes towards your needs, 30 percent goes towards your wants, and 20 percent goes towards your savings. Simple enough, right? Of course, the challenge for some people is deciding what expenses fits into the needs and wants categories, apart from obvious things such as food (need) or certain electronics (want). The other side of this is the stability of your finances. Depending on your earning, debt or investment goals, you may need to tweak those numbers a bit.
Speaking of tweaks, you can look at the 70/20/10 budget as a modified version of the 50/30/20 rule. This one is needs-oriented. 70% goes to your immediate expenses, including food, rent, clothing and other necessities. The 20%, which goes to your savings, is more focused than the 50/30/20 rule – it’s split three ways. 10% goes towards insurance or retirement, 5% goes towards emergencies, while the remaining 5% goes for your individual goals (such as vacations or hobbies). Finally, there’s the remaining 10% that’s designated to pay off your debts, whether they come in the form of a car loan, credit card/line of credit balances and student loans.
If you want the most simplistic form of budgeting out there, the 80/20 rule may be the trick for you. And it’s preferable if you’re having difficulty covering the necessities. There’s nothing too fancy about it really – 20% goes to your savings while the 80% goes everywhere else. Unlike the other budgeting strategies mentioned above, you don’t need to do extensive tracking to stay afloat, providing you have a general view of what your cash flow and savings looks like. It can be a hassle-free system to put your funds where they need to go, and it can give you a bit of flexibility in terms of how you ration your money.
How to Budget Your Money Pt 2: A Name Game
The next set of techniques derive their name from objects and concepts, as opposed to numbers. They too, can help you manage your budget. In similar vein to the number techniques, these budgeting tips may or may not work for you depending on your individual needs and circumstances. That’s why you should think carefully about the one you choose.
If simplicity is king when it comes to managing your money, then give the envelope budget a try. As its name suggests, it’s the practice of treating your expenses like the contents that go into a particular envelope. To start, you create a series of folders on your computer (phone and tablets work too) or designate actual envelopes for which you’ll put certain expenses in. So one envelope could be your “Food” envelope, while another is your “Emergency” envelope. Whatever amount you put into each folder should go for that specific cause only, never withdrawn for anything else. It really is an exercise in terms of discipline.
Bucket budgeting bears some similarities to the envelope technique, although it is a little more focused. With the bucket method, you separate your budget into three accounts. The first is a chequing account to pay for all of your living expenses (the necessities). The second account is a savings account, which you’ll put a percentage of your earnings for things like retirement or kids’ tuition costs. The third account is a second chequing account, which you can think of as your “splurge” fund. You can use it for the vacations, gadgets, and shopping sprees you enjoy. Of course, this is a method that requires much discipline in terms of allocating your money to the right places.
The third budgeting method we’re going to look at stands as one of the toughest. It takes a lot of fortitude to stick with this one. We’re talking about the elimination budget, and as its name implies, it requires you to strip away the costs that are not necessities. In fact, it’s a smart move to make if you feel buried under debt. You start this method by looking at your budget, finding all of the unnecessary expenses in your life, and getting rid of them until you’re spending a little less than your income. That could mean getting rid of expensive restaurant dinings, T.V./internet subscriptions and your favourite vacation spots. It’s a painful path to travel on at first, but it can bring your debt to a manageable level.
Follow Your Own Rules
As you can see, there are many different budgeting tips and strategies out there. There really isn’t one way to manage your money. All that really matters is the fact that you’re making the effort to stick to a budget, addressing the necessities and paying down any debts you may have. Additionally, you should make it a priority to save and invest where possible. It’s certainly not easy managing money these days. But the last thing you need is to feel overwhelmed by all of the tricks offered by the banks and the gurus out there. What you need is to find a technique that matches your circumstances and your temperament. By doing that, you’ll find it easier to stick to your budget in the long run.