Do you like the word “Budgeting”?
If not, you will start liking it and using it after you read the entire post.
Many people would think budgeting restricts them from buying what they want and that it holds their spendings.
When you see the actual scenario, budgeting doesn’t block you, but it gives you financial freedom when you look at it after six months or one year.
You can create your budget when you want to take control of your money and stress about money.
The benefits of a perfect budget are:
- You can get out of debt faster
- Buying a new house
- Saving for retirement
- Planning for another luxury vacation
- Making an investment
- Being able to afford great colleges for your children, etc.
Before sharing the steps on how to budget, let’s check out what it actually means.
What is healthy “budgeting”?
Healthy budgeting allows you to create a budget plan for your spendings without restricting your needed expenses.
It should enhance your financial freedom and earn you some extra money at the end of every month.
A real budget will help you attain the long-term benefits of proper money management.
By having a budget, you’re spending on the things you actually planned out before.
Free budget template:
We created a free budget template so that you can download it and make use of it to achieve your financial goals in a trouble-free way.
Now, let’s check out the steps to make budgeting very easy.
Step 1: Make a proper budget plan – Find the best budgeting methods
We have multiple budgeting methods that give you a proper route to your budget. And we’re going to check out the three best budgeting methods among those. You can effortlessly get to know your own best way to create a budget once you find that.
1). Budgeting method #1: 50/30/20 rule
In a nutshell, the 50/30/20 rule is simpler and more applicable for almost everyone than the other budgeting methods. And it is the very best method for the people who are freaking out about money.
The 50/30/20 rule method helps you divide your expenses into three categories: Needs, Wants, and Savings.
Before dividing what you’re spending into three, you should consider the income you’re getting, after-tax.
If you’re working for a company, it would be very much easier to calculate the tax amount. Check the amount you’re paying for IRA or 401K and overall, and subtract that from the total income you’re earning per month.
Coming back to the point. If you apply the 50/30/20 rule on your income, 50% will go towards needs, 30% will go towards wants, and 20% will go towards savings.
On this budget, how much do you need to take for “needs” each month?
Needs can be the amount you’re spending on groceries, utilities, mortgage, car, and housing.
Calculate the amount for your needs, and make sure it should not exceed 50% of your income.
However, you shouldn’t include your cable or phone bill or clothing bill in your “needs” section.
About 30% of your budget should go towards “wants,” including buying new shoes, nice outings, shopping for clothes, eating at nice restaurants, etc. However, it should not represent a lavish lifestyle. Wants should include the essential items you want to buy, such as cable, phone bill, and others.
Overall, your “Wants” should exceed 30% of your income.
The “wants” come one layer above the “needs.” The primary difference between “needs” and “wants” is that you can’t live without your needs while living without your “wants” only represents a minor inconvenience.
The third section, which should represent about 20% of your income, goes towards your “savings.”
You can spend this part of your income on savings and investments, which will be profitable in your future. However, it shouldn’t equal more than 20% of your income.
2). Budgeting method #2: Envelope system
The envelope system allows you to keep cash in every envelope that is meant for particular items. Think of those bills you usually spend on groceries, restaurants, gas, health, and others.
When your bill comes up to more than what you put in each envelope, cut out some expenses or take the excess amount from another envelope. But you need to make sure that you don’t spend more than your overall budget.
This method will help you if you’re overspending each month and will make you follow discipline and accountability.
3). Budgeting method #3: Zero-based budget
The zero-based budget makes you give importance to every dollar you’re spending.
Give a name to each dollar you’re using in a month. If you’re having a remaining $500 each month after your budgeted amount, then assign the $500 to any other useful item in your duty bucket list.
Assign the extra dollars for your essential investment, savings, etc.
Well, why is it called the “zero-based budget?”
The real reason behind this is that you’re making the amount you’re getting after your income, minus expenses, equal to zero (income – expenses = 0).
Step 2: Track your things
Once you create a budget, you should have to keep track of your expenses and know how you’re proceeding further.
You can keep track of your budget using apps such as Mint, Every Dollar, Pocket Guard, You Need A Budget, or Personal Capital.
You can set your monthly spending target on all these apps and track it so that you won’t need to try too hard for your budgeting.
App-to-app, the way your budgeting will be different, but ultimately, it serves its own purpose.
You can also make a tracker sheet on your own to track your things, but you have to work a little for that. That is, you have to write down all of your spendings on the sheet and should be strict and careful while tracking your expenses.
Step 3: Adjust if needed
You can make some adjustments to your budget if it is indeed.
For example, if you have finished buying all the things within the 45 or 40% of your income (from the 50% you allocated for your needs), you can, of course, spend the remaining amount on other things you like or want. You can either use that money to fulfill your wants or place it in savings or investments.
I usually would put the money in my savings account when that happens, but make the adjustments that will be beneficial for you.
Please, let us know in the comments section if you have any other budgeting methods that will be interesting and simple.
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