Creating and sticking to a budget is the best way to ensure you’re living within your means. With the rise in the cost of living your money doesn’t buy as much as it used to. A typical trip to the grocery store or gas station now costs significantly more than just a year ago. It’s understandable if you’re finding it hard to make ends meet. You’ve likely tried cutting back, but even that might not be working as you hoped.
Creating a budget and sticking to it is the best way to avoid overspending. Budgeting shows you how much money you bring in, how much you spend and, perhaps most importantly, what you spend it on.
Budgeting doesn’t just ensure you aren’t spending beyond your means. It’s really about goal setting. Do you want to build up an emergency fund? Pay off your debts? Buy a house? Reduce your weekly expenses overall? A budget is going to help you get there.
You also need to identify what your wants and needs. If you pay $3 for coffee each day, that’s over $1,000 a year. Creating a budget helps you decide what you actually need.
Take our quiz to see what your budget persona is and ways to improve your spending habits.Take the quiz now
The 50/30/20 budget is all about percentages. It's a great thing for people who want to keep it simple. The idea is to spend 50% of your income on necessities, 30% on wants and put the other 20% towards savings/debt repayments. It’s a great option for someone who is new to budgeting.
As long as you can successfully categorize what is a want and what is a need it’s relatively easy to keep on track with this budget. It’s also easy to customize to fit your income and spending habits.
If you set up automated bill payments this budget is easy to keep on top of. It also has the idea of saving money and debt repayment built into the budget. Having only three categories also makes it easier than worrying about 10 things.
It’s easy to get caught up in the percentages of this budget. If you have large amounts of debt having only 20% of your money go towards that might not be enough. If that’s the case, you can decrease how much money you spend on your wants.
You may find that decreasing your spending on wants to 20% on you wants and increasing your debt repayments to 30% works better for you. This budget can be customized to fit your needs.
With this budget method you don’t have to track your spending as much as other budgeting methods. It’s a way of prioritizing savings. With the pay yourself first budget, each time you get paid you set aside a specific amount of money for debts/bills and savings payments. Setting up automatic bill payments for as many bills makes this easy.
The rest of the money you can spend however you want. It’s a budget that prioritizes staying on top of your savings and debt repayment goals.
As this focuses on ensuring your savings grow, it’s a great budget for setting yourself up for the future. You also don’t need to track all of your spending down to the dollar this way because you’ve already taken care of the most important things each time you get paid.
While this does help you save money and pay down debt it won’t get you out of trouble if you have a lot of debt. People with lots of debt may find themselves financially stretched if they need to set aside lots of money each month for debt payments.
When it comes to budgeting, there’s an app for that.
If you’re looking for something that tracks day-to-day spending Mint, which is free, is a good option. The app allows you to create a budget and then provides you insights designed to help you make smarter purchasing decisions and save money.
Mint also connects to your bank account and can send you alerts about upcoming bills.
If you’re willing to pay for a app, YNAB, short for You Need A Budget, is designed to help you save money and get out of debt. The idea behind the app is you save money and eventually use the money you earned last month to pay for the thing things you buy in your current month. The app also tracks your financial goals.
There’s a free trial period after you can choose between a monthly or yearly subscription plan.
If you’re someone who isn’t the best at remembering when bills become due and struggles keeping track of purchases on your own an app can take care of all that for you. They track your spending and provide insights to save you money going forward. If you get one for free it doesn’t cost you anything to start budgeting at all.
Using a budgeting app increases the risk of your data being compromised. Many, such as Mint, use tools such as multi-factor authentication to reduce this risk but no app is completely unhackable. While they are designed to keep you on track, they’re unlikely to get you out of a massive amount of debt if you have that already
For the zero-based budget you look back at the past two or three months of spending and create a template for how much you expect to spend this month using that data. Take your income and subtract your expenses from it, including savings and debt payments, until you reach zero. This is best done using a spreadsheet or budgeting app, but you can use pen and paper as well.
You may see you spent about $300 on groceries each of the past few months so you subtract that from your income. Do that for all your regular savings and expenses and you’ll know how much money to allocate towards all your spendings. This isn’t just for essentials, you also put aside money for entertainment and other miscellaneous spending.
This kind of budget requires the most forward thinking and planning. It’s almost impossible to do without a spreadsheet, app or pen and paper. There’s also less room for error and unexpected large purchases may throw the budget off.
The NO budget means you don’t spend money you don’t already have. With this budget you pay with debit or cash as often as possible.
All you have to do is to keep track of your bank balance. It also helps if you set up automated bill payments for any reoccurring expenses so you don’t need to worry about remembering them. You also make sure you have an appropriate amount set aside each month for savings and debt payments.
While this sounds like the easiest budgeting method on the list it requires incredible discipline. It’s not easy to say ‘no’ to yourself all the time. If you know you tend spend impulsively this probably isn’t the method you want for your money.
Creating a budget means facing your financial reality head on. If that’s overwhelming or you realize a DIY approach just won’t work for you, our team can help. One of our Licensed Insolvency Trustees will work with you by going over your income and expenses to assess your financial health. Book a free consultation with us today.