For a healthy body and mind, we all prefer healthy diet plans. Some people try intermittent fasting, others may try low-fat diets or keto. All of these are beneficial and work for people. It depends on a person which dieting method they should try. As there are several choices for you to select one best dieting method that suits your lifestyle, there are thousands of methods everyone uses when it comes to budgeting for financial wellness.
In both cases, Following different methods is better than fasting or just unconsciously spending your money. But the main confusion starts when you decide that you’re going to plan it. Obviously, there are plenty of plans or strategies that you can try for budgeting or diet, but choosing one that goes with your lifestyle— kind of hard.
Although, we research or consult with specialists for healthy diet plans. But this is really unpopular among people to consult with any financial advisor for their personal financial management. That’s why it’s harder to plan a budget than making a diet plan.
If you are someone struggling to manage your personal finance, searching for ways to achieve financial wellness or a newbie on budgeting— this article is going to guide you till the end. I hope you might find the strategy while you go through this.
5 Simple Budgeting Methods to Live on a Budget
Before, planning or choosing a foolproof method to live on a budget it requires research. Here, I saved your time and researched all kinds of methods on budgeting. Then, I picked only 5 simple methods that anyone can try.
In this article, I will try to explain those 5 methods as well as the pros and cons of them. So that you can figure out if you wanna try one method or mix match different methods for different situations.
Give Each Dollar a Purpose with Zero-Based Method
This is a way of budgeting where your income minus your expenditure equals zero by the end of the month. Now that does not mean, you need to have zero amount in your account when the month ends. The amount you have as savings or investment are already calculated in the past month.
Under this method, every single month you’ll plan a budget from scratch where you fix your activity according to the current income of the month and make sure you give every single of your dollar a job. So that you can evaluate cash flows, analyze your activity to justify the expenditure.
This method encourages flexible planning and tracks your financial behavior in detail. Though it requires time to scrutinize every single category of personal finance, then again this will ensure your full control over money when you are working hard to live on a budget.
Say, your monthly income is $2000. So, you need to make sure you’re using this amount for the rest of the month without borrowing from anyone or withdrawal from the savings account. To achieve the goal you can add every single category and expenses in a spreadsheet or your finance management app. In that case, your lists might look like this—
|Accessories & clothing||$200|
|Credit card payments||$150|
- No matter if you are having irregular income or fixed this method fits for every situation.
- Flexible detailed planning increases awareness.
- Ensures efficient allocation of money.
- Helps to pay off debt depending on your priority.
- Consumes a huge time to plan and monitor categories.
- Requires high maintenance and in detail planning.
- Busy people might find it complicated.
Switch to Envelope System
Also called the “Cash-only system”— is a simple concept where you allocate the total amount of income into different envelopes to spend a specific amount for specific purposes. Famous Finance guru Dave Ramsey made this system to take control of your overspendings. These days we all use cards to pay for our expenditure.
Therefore, we often fail to manage credit card debts and lose track of our savings account. In the envelope system, it will insist you use only the fixed amount and this might give you second thoughts on purchasing random things.
So, How does the system work?
You need to take a few envelopes and make different categories based on your expenditure. Such as Grocery, clothes, bills, insurance, entertainment, skin-care, hobbies, maintenance, restaurants, gifts, etc. Suppose, you overspend on clothes. So, this is hard for you to resist whenever your favorite shop announces a huge sale.
In that case, you can fix an amount monthly for clothes and make sure you’re spending from that fixed amount. Similarly, for the other categories, you can fix a specific amount to use for the rest of the month.
- Forces you into a disciplined system.
- Hard to overspend.
- Planning before spending keeps you on track.
- Decreases credit card debts.
- It’s easier to be aware of your expenditure.
- Better for those who need to live on a tight budget.
- Frequent withdrawal of cash can be time-consuming.
- Keeping a huge amount of money with yourself, might not be safe.
- Not practical for online shopping or bill payment.
Although, It’s not necessary to keep cash in an envelope, as the world is embracing cashless online shopping or bill-paying systems. You can modify this system into apps where you’ll pay cash from the app and the app will automatically keep the track of your money.
The 50/30/20 Technique
After analyzing spendings and monthly income you know about all these mandatory expenditures of the month also where you spend more. Often we get to spend on things that we want, not on the things that are essential. It’s important to figure out the difference between necessity and desire. So that you can make a budget plan that works and ensure savings even if you have to live on a tight budget.
50/20/30 technique is a budgeting method that confirms the balanced distribution of your money in every sector of your life. The basic concept is to distribute your after-tax income and divide your expense into 3 categories:
- 50% on mandatory needs.Such as Food, House, utilities, maintenance, etc.
- 30% on hobbies, entertainment, outings. Basically, on those things that are desirable to you but not mandatory every time.
- 20% on savings, investments, or managing debts.
Let’s assume, your monthly expense is $5000 per month. According to this technique, you need to separate half of your income that is $2500 for monthly necessities. In this way, you are only allowed to spend $1500 on your wants.
If you are someone who overspends for entertainment purposes, this technique might really help you. Also, if you don’t know how to save money from monthly income, using this technique you can save $1000 every month from your income.
- Does not require traditional categories for the individual expense.
- Easy to start and maintain.
- Time saver, so perfect for busy people.
- Ensure monthly savings for paying debts or the future.
- According to research, This technique seems impractical for the people living in cities with higher living costs.
- The lack of categories might make it harder to control impulse purchasing.
- People with a huge debt couldn’t manage their debts with this technique.
Save Your Money with Reverse Budgeting
Reverse budgeting focuses on your savings more than your spendings. A fixed amount of income must go to your savings account before you spend a single penny. It forces you to prioritize your savings at first. You can’t spend more than you have. So, whenever you separate the amount for savings and transfer it to a savings account, you can spend the rest of the money on your own wish without any concern.
To limit overspending we often choose to restrict our expenses. Limitations and structured traditional budgets make life bounded like a spreadsheet. If you want to have freedom of spending but control overspending habits of yours, then a reverse budgeting system will be a perfect option for you.Basically, It’s the opposite of traditional budgeting.
This method is also known as the “pay yourself first method” where you are saving the money as if you’re paying off the amount for taking care of your future-self.
- Prioritize savings on the top.
- Controls overspending habits.
- Low maintenance compared with other methods.
- Time saver doesn’t require weekly plans.
- Beneficial for people with long term plans.
- Credit card users can purchase without any restriction with the increasing amount of debt.
- People who never earn a fixed amount might find it difficult to save a fixed amount every month.
Try 80/20 Method If You Hate Tracking
This is a simplified version of the 50-30-20 technique. In this method, you need to separate 80% of the income of yours for the needs and 20% for paying debts or savings. It makes budgeting simpler and here you won’t get confused with your needs and wants.
Families or a person who lives in areas where living costs and expenses are so high that they can’t afford to follow the 50-30-20 method even if it works for many people. They can try this method, also you can apply this method if you want to follow reverse budgeting. In reverse budgeting, you can fix a particular amount for savings, but here you can only save 20% of your income. So that you can achieve your short-term plans.
Suppose, you have just started earning and with a very low amount of income, you want to buy a car. Following this method, you can save a little amount every month for the car and also live your life on a budget.
- Beginner- friendly.
- Doesn’t require time or detailed analysis before budgeting.
- Short-term plans are achievable with this method.
- You can manage your debt and savings instead of having a lower income.
- Practical for people living in areas where living cost is high.
- Can’t control overspending habits.
- Hard to track your expenses.
Get The Track of Your Life
Everyday we are making financial decisions and there is no way to run away from the consequences of those decisions we made. That’s why everyone with any kind of financial condition needs to follow budgeting methods if they are working hard to live on a budget.
The best budgeting method among all is the one in which you can stick to until you meet the financial goal.I’ve introduced 5 methods here, according to your priorities you can choose any of these budgeting methods to fulfill your desire or maybe you can customize all of these methods for different situations in your life and secure the track of your life.