We all know that budgeting is the key to financial success, right? Well, then why are 65% of Americans failing to use a budget at all?
A Mint survey found that Gen Z is the least likely to know how much they spent last month, followed by millennials. Overall, a third of us wish that we’d spent less.
Does any of these regrets and confusion sound familiar? If so, don’t fret. It’s not too late to get on the straight and narrow with your personal finance goals.
Follow these top budgeting techniques to keep the reins on your spending and make sure you have something extra to slide into your monthly savings.
Using a traditional budget
If the idea of using a budgeting strategy is entirely alien to you, let’s start with the basics of how this works. You’ll need access to some important budget figures, which will be miles easier if you gather some bank statements, income slips, and bills to work with.
You can either use:
- Simple pen and paper
- Spreadsheet such as Excel or Google Sheets.
- Budgeting app
Essentially, you need to note down your expenses, either on a weekly or monthly basis and make sure that the total is less than the money you’re paying out is less than the money you’re bringing in each month. If you discover that you’re living beyond your means, try not to panic. The Finances Hub can show you plenty of frugal tips to keep your spending on track.
Remember to include ALL of your expenses in your monthly budget. This includes essentials such as your:
- Mortgage or rent
- Transport costs
- Utility bills
- Cell phone charge
But they should also include non-essential living costs including:
- Meals or takeout food
- Gym membership
You can use the traditional strategy as a starting point to be a bit more creative with your personal budgeting methods, but it can be quite eye-opening!
The 50-20-30 plan
This is one of the most popular budgeting tips and it works on the basis that you divide up each pf your paychecks into a simple 50/20/30 split.
50% will be spent on your essentials, 20% will go into your savings and the final 30% is left to spend in any way you choose.
If you’re considering using top budgeting tips such as these, then it’s important to get the timing right to make sure you stay on track. That means depositing that 20% into your savings account on the day you receive your pay packet, rather than waiting a couple of weeks and realizing ‘oops’ it’s gone.
The 50/20/30 does require a bit of discipline, in that you’re giving yourself a set amount of money to spend each month. BUT it’s effective because you can spend it however you please.
Remember this though, once it’s gone, it’s gone. No dipping back into your savings to make up for a shopping splurge or a night out that was a bit crazier than you planned.
There are some challenges with the 50/20/30 plan, particularly when you need to decide what counts as part of the 50% budget towards essentials and which must go in your 30% non-essentials category. For example, if you’re going grocery shopping and you spend X amount on ingredients for your planned meals, then that’s essential. But can you say the same for the bumper pack of Oreos and three tubs of Ben & Jerrys you’ve also shoved in your basket?
You’ll need to be strict and make some difficult decisions to make the plan work for your precise situation.
The 80/20 strategy
The 80/20 strategy overlaps with the 50/30/20 plan and is also considered to be one of the best budgeting methods as it’s pretty easy to follow. But instead of having to define your essential vs non-essential spending, you can choose to umbrella it all together as part of your 80% outgoings.
The remaining 20% will be placed in your savings as soon as it comes in. This is known as ‘paying yourself first’ which is a really important budgeting step. You’ll never have to worry about your savings again if they’re immediately taken care of as soon as the cash rolls in.
If the 80/20 budget split isn’t going to be enough to help you reach your personal finance goals, then this can be tailored to fit your situation better. You can adjust the numbers to 70/30, 60/40, or even 50/50 if you’re able to do so and want to be extremely aggressive with your savings plan.
There is scope for some financial creativity with this plan which is why it’s one of our budgeting techniques that adapts well to people in any salary bracket.
Give every dollar a job
Have you heard of zero-based budgeting? This clever money savings trick will take your bank balance to zero at the end of each month before your next earnings arrive.
Sounds dramatic, doesn’t it? But actually, all this means is that every single dollar of your incoming payment is accounted for and spent in some way.
Does this mean that you’re not saving anything at all? No! It just means that a certain portion of your wages will be paid straight into your savings account, including your 401k or Roth IRA if applicable.
To make the most of this personal finance technique, you’ll have to be comfortable with being seriously hands-on so that you don’t have either a positive or a negative bank balance at the end of the month. Every dollar will be accounted for, and you get to decide in advance how to plan to spend your hard-earned cash which puts you firmly in control of your money.
You’ll need to dedicate quite a bit of time to this personal finance strategy although the beauty is that this in-depth analysis of your spending will make you a budgeting expert. In turn, you’re more likely to make excellent financial decisions and end up with more to save in the long run.
No budget at all
What’s this? A personal finance article with a strategy suggesting you don’t use a budget at all?
Yet, some people swear by not sticking to set figures at all and this can actually be quite a successful money management technique.
The idea is that you automate your payments to come out either on or slightly after payday. Then you spend carefully until the following payday without tracking or analyzing a breakdown of your expenses.
Whatever is left in your account at the end of the month, is yours to pocket straight into your savings.
This is a totally flexible budgeting solution as it means during spendier months such as November or December, there’s less pressure to save like mad. But you can make up for it at during quieter periods when there’s less going on.
Obviously, trying out budgeting techniques such as these is quite risky and relies on you not blowing your entire balance in one shot. But if you follow a reasonably frugal lifestyle or are a high earner, then it could work for you. Plus there’s plenty of freedom involved.
Different savings pots
Up until this point, we’ve spoken quite broadly about savings as an umbrella term for any type of money you might set aside.
But as you know, there are a variety of short-term and long-term goals which need to be saved for. Retirement is the big one, which is the purpose of setting aside money throughout your entire working life so that you can live comfortably once you’re no longer earning.
But what about shorter-term goals such as saving up for your first car? Putting down a deposit on a home? Or simply planning to take a vacation this summer?
Even creating an emergency savings fund for any type of eventuality is a good idea as it can provide quick access to cash if your boiler breaks or if you’re suddenly made redundant?
Depending on your bank, you can set up savings accounts that have multiple sub-savings pots. Each of these can be given a nickname such as ‘Christmas presents’ or ‘New home’ so that you’re able to track the process of each of your individual budgeting goals.
Best budgeting apps to use
A guide on personal budgeting methods wouldn’t be complete without some discussion of the tools which can make your money management so much easier.
We’re talking about apps such as Mint, You Need A Budget (YNAB), or Personal Capital. You can download these to your desktop or smartphone and have all the information you need about your personal finances at the touch of a button.
If manually inputting budgeting figures into a spreadsheet isn’t for you, then you’ll love the convenience of budgeting apps and they’re also a really positive incentive to keep you on track.
Apply Budgeting Techniques Today
Now you’ve learned some of the best budgeting tips for 2021, it’s time to put them into action. Why not start sorting through your general spending and saving habits today and put the wheels in motion to improve your budget?
For more top tips on budgeting, The Finances Hub has a library of personal finance articles which are packed full of simple tips. Check out our blog today.