There are many ways to budget, and finding the right method takes a bit of research.
But as long as you come up with a plan and stick to it, you can give yourself the best chance for success.
To decide on the right method, consider your goals. For example, do you need to spend less?
Or is it important to you to pay off debt? Then you can learn about strategies to meet your goals.
Paying Yourself First
With a simple budget, you’ll pay yourself first, which means you’ll put money toward financial goals such as savings.
The idea behind this budget is that whatever you do with the rest doesn’t matter.
For example, maybe you want to put away about a quarter of your savings.
So, you might put about 10 to 15 percent toward your retirement contributions and another 10 percent toward a vacation fund.
Then you would spend the remaining three-quarters the way you want without worrying about what you’re doing with it.
The advantage is that this method puts saving money first.
You also don’t have to track each expense, which is often hard and might discourage you.
However, some people aren’t ready to save, like ones that have a lot of debt.
If this is true for you, you might want to look into paying off debt before choosing this method.
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Line-Item Budgets
This might be the type that comes to mind when you consider a regular budget.
You might have a spreadsheet and list your expenses in categories.
The goal is to keep track of your expenditures, so you don’t go over your goals.
To start, you would list every category over a certain amount of time, such as a year or a month.
During the year, you can compare your current expenditures to ones from the past.
This type is often used to track how much you spend and not how much you save, so make sure you account for that.
This is fairly easy if you’re new to the process, and it allows you to control spending.
However, it doesn’t always give you flexibility for large, one-time expenses.
Proportional Budgets
With this system, you’ll allocate a certain percent of your monthly income to certain categories.
Those are wants, needs, and savings. A need includes living expenses, such as food or rent.
Wants are the fun expenses, like makeup or going out to eat. Savings include creating an emergency fund, paying off debt, or preparing to put a down payment down on a house.
You could start by putting 50 percent toward needs and around 30 percent toward wants.
The rest can then go toward savings.
You can adjust this as necessary depending on the cost of living in your area.
If you have a particular savings goal in mind, you might consider reducing what you put toward wants.