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BUDGET IS A BAD WORD

When I think of budgeting I imagine depriving myself of the things I love, balancing numbers on paper, and generally ‘doing without’. So in the end, if I’m lucky, I might have a few extra dollars in my account. Isn’t that how everyone feels about budgets?

In this post, I hope to change that mindset. If a budget feels too constricting to you think of it as a plan for your money. The plans I’m going to present to you are merely options. When it comes to your finances you need to consider your lifestyle and values in order to choose a plan that will work for you and your family.

What we value is very personal and different from one person or family to the next. By reducing spending on things you don’t value you have more to use on things you do value. Basically, you need to sort out your needs vs your wants. Then sort your wants by how much you value them, and what they contribute to your life.

WHY SHOULD I HAVE A BUDGET?

Before I get into the different types of plans/budgets let’s look at the benefits of budgeting. One of the big things you’ll find is that having a clear plan in place will keep you from over-spending and put you in control of your money.

You’ll find it much easier to save money and/or pay down debt with a good budget and your goals will come into reach as you consistently stick to the plan you’ve laid out for your finances.

A budget that is a good fit for you will be simple and flexible. Remember, you are in control! If the plan isn’t working or something needs to change just do it. It’s YOUR plan.

Don’t forget to make room for ‘fun’ in your budget. No one should have to forego everything fun indefinitely. If you feel you need to for a short duration, say to pay down debt quickly, then do so. There are lots of ways to have fun without spending much, or any, money. However, as soon as you can, start putting the fun back in a little at a time.

WHICH PLAN IS RIGHT FOR ME?

In all my research I found many types of budgeting methods. However in the end they all boil down to one of these four plans. I’ll do my best to explain each one. If you have any questions you can leave them in the comments and I promise I’ll answer them.

1) The All Cash Method

Sometimes people use envelopes or jars to separate their cash into categories like ‘groceries’, ‘clothing’, ‘electric’, ‘phone’, etc. With so much of our banking and bill paying done online now, we don’t tend to keep much cash on hand.

What you can do is pay your regular bills online as usual. Transfer savings to your savings account. If you can automate the bills and transfers all the better. What’s left you take out in cash, divide into your remaining categories, and put into envelopes or jars.

What you have to spend in each category is up to you but once the envelope is empty that’s it, there’s no more. It may take time to get the amounts just right unless you already know exactly what you actually need for groceries each month, clothing, etc. If you have extra left at the end you could decide to put it in savings, towards paying off debt or split it between the two. Or maybe you don’t feel the need and put it all into your ‘fun’ fund. It’s up to you.

2) The Percentage Method

There are different versions of this one but they all break the budget down into percentages such as the 50/30/20 method. They are all based on your income after taxes so your ‘take-home’ pay.
50% – Needs or Living Expenses
30% – Wants or Discretionary
20% – Savings and debt

Then there’s the 60/40
60% – Necessary expenses
40% broken down into 10’s
10% – retirement
10% – long-term savings
10% – short-term savings
10% – fun money
The last one is barely a budget but I have seen it so I’ll share it. It’s the 80/20: 80% for expenses and 20% for savings and debt. How you allocate the 80% is your choice.

This method is pretty straightforward. It just requires having very clear lines between wants and needs. What you consider a need is, again, a personal choice but is generally understood to mean anything required to live, work, go to school, etc.

3)Zero-based Method

In this method, you simply list ALL your expenses and allocate a certain amount to each until there is no money left. It’s a very basic budget and the one I used when I first started budgeting as a young mother. It’s not my favorite. I transitioned to the envelope system which worked much better for me at the time.

4) The Non-Budget

I wouldn’t recommend this as a first-timer’s budget choice. There really is no written-down plan. It involves knowing exactly how much money comes in and how much goes out in bills. After that, you keep an eye on your bank account and live on what’s left until the next payday. I would suggest having an automated transfer into a savings account each month as well as automating all your regular bills.

The benefit of this system is it is very little work after you set up the automatic payments. It works well for anyone on a fixed income with bills that don’t fluctuate much or someone who makes enough money that they don’t have to worry about running out of spending money.

So there you have it. Four different ways to budget your money. You decide which is the best way for you and adjust it to fit your family and lifestyle. If you have another way of budgeting that I haven’t mentioned please tell me about it in the comments.

Roze