Budgeting is a word, best defined as the measurement of expenses. It is the key to a successful financial life if maintained properly.
Any form of income requires a proper budgeting rule, to not exceed financial limitations and reach the planned expectations.
No matter whatever the mode of income is, be it business or personal, all need a good budgeting to track the list of expenses and savings.
From my personal experience, I can say, that personal budgeting is like keeping a virtual manager for your financial purposes. It has helped me a lot in spending sensibly and saving a lot more than I could have imagined before starting off with my career.
Here I will be listing a few of the budgeting methods that I followed as per my requirements, during my rough days, and still follow till date. Guess it will come useful for you as well.
- The traditional way
There is nothing that can show flexibility than this old school method of personal budgeting.
This has got its own limitation though. This process requires intelligence, detailing and along with good decision making. This is undoubtedly for the pros, who are done with investment plans and are trying to bend their expenses.
The game is somewhat like this.
You start penning down your every expense minutely. Do the calculations and see whether it is exceeding your expense limit or not. If it exceeds, then find out where you need to cut down.
After consistently managing this structure for a few months, you will get a good understanding of your needs and will spend accordingly.
You only need to set a limit to your expense.
- Enveloping your dollars
This is the easiest way to divide your income into your expenses. Make envelopes for each of your spending amounts; one each for groceries, bills, transportation, eating outs and so on. Also make one for your savings.
The thing to keep in mind is that you can refill those envelopes, once empty, only on your next payday.
This way you won’t be able to overspend than your dedicated amount that you have set for your each expense.
This enveloping method is great to bring your expenses fragmented. With this form of personal budget you are doing both, keeping a track of spending and not excluding any expense factor.
All you need to do is setting sensible amounts for each of your expenses and categorize them.
- The Zero balance budget
Here we will use the check in, check out method. Your total income will get flushed out as it is!
No! Don’t you freak out!
It is the art of balancing expense and income equally.
You have to entitle every dollar of your income a purpose.
If after calculating your expense, you are left with an amount, you must assign it a purpose, say savings or anything useful that comes to your mind. You need to forcefully make the remainder zero.
This way you will get a clear picture of where your every penny goes.
Helpful for a great number of people, this budgeting gives you wide predictions about all your possible expenses.
Whenever you will assign an amount its new purpose, you are doing a probability for that particular expense. It’s like thousand times you will rethink whether or not to create this new expense. You will always try to find a better option.
This is a time taking but highly effective way to manage money. It is never for the party goers and chill-outers. The moment they will be left out with any amount, all they can think is partying.
- The self-nurturing budget
A budget where you start paying yourself first.
On your every payday, get a certain amount of your income drifted to any savings account or say a 401(k) savings plan. You should not be bothered about this savings.
You will start to spend from the amount that’s left.
When you think you can save more without any difficulty, you can readily invest more into your savings from your expense amount.
This personal budget follow only one rule – Savings first.
- Using only cash
This is the most headache free budgeting dedicated to non-usage of credit cards. We all know that cards can incur huge amounts of debt, if not utilised wisely.
So your rule would be to use only cash and using cards only when necessary.
While swiping your cards you usually don’t keep a record of your expenditure, but with cash you tend to count every penny that goes out.
This I have included in budgeting because it is really helpful in avoiding debts. If once you fall in the traps of debt, it becomes really difficult and expensive for you to get out.
- The 50-20-30 budget
My best style of budgeting. This is the most effective method to cover your every aspect of money management.
This one’s got 3 steps:
The first step is to keep 50% of your net income for your daily needs and basic utilities. These include bills, transportation, grocery, loan payments and anything that’s your requirement.
The second step is to keep 20% of your income for savings. The best for you is to keep a recurring deposit account that gives a good interest rate, where you will invest this 20% of your income every month.
The third step is the fun. You keep 30% of your income for luxury and wants, like vacations, trips, camping, clubbing, etc.
To be kept in mind this is a per month budgeting method, and the percentages are flexible.
Some months you can follow the 50-50 plan where half goes to savings and half for your needs.
You can structure it as per your requirements.
With this we have arrived to the end of this discussion. I can never guarantee you financial independence. But what you can do is follow a couple of these rules that I laid out for you. It will promise you a decent lifestyle and good savings in future if not anything else.