Budget is something that bothers a majority of people. Every month’s toiling is to lead a happy life throughout the year. However, truth be told, a significant mass find themselves strapped for cash by the end of the month, sometimes left with literally nothing at their disposal.
If you’re reading this, then you are probably in the same boat. It could be heart-clenching to see that hard-earned money being slipped away needlessly. It is quite an understandable conflict too that happens within yourself.
But saving money is neither a hard-to-achieve task nor rocket science. With some strategies and a little bit of discipline, you can rack up more money. The following strategies are time-tested and have been used by many millionaires and financial experts who will help you financially.
50–30–20 Budgeting Method
Most of you might have heard this! It is a widely known approach that suggests splitting up your income into three – 50% for your ‘need category’, 30% for ‘wants’, and 20% for ‘savings/investments.’ This method helps you keep track of where your money goes, and avoid unnecessary spending. The advantage of this strategy is that it lets you enjoy your life without having you be frugal and compromise your wishes. Plus, it can be amended as per your wish. Want to amp up your savings? You can try the ‘50-20-30’ split.
Some people find it difficult to calculate the number on their own, but worry not! You have many budget-tracking apps to keep your finances in check.
It is a wonderful Japanese method, which emphasizes mindful spending. It would be suitable for you if you are into journaling. Similar to the above methods, it also segments your money into four – needs, wants, culture (like visiting a museum or buying books), and unexpected expenses.
All it takes is jotting down your expenses into the corresponding categories and analyzing them. You have to ask yourself a few questions regarding your spending habits at the end of every month.
- How much are you aiming to put aside?
- Why are you spending on this?
- What is your starting and ending financial status every month?
- How can you refine your spending habits?
This way of keeping a financial journal lets you know the flow of money coming in and out. It helps you figure out any unnecessary spending you have done and let it not repeat in the upcoming month. Also, you can have a clear idea to reanalyze and improve your saving habits.
Although jotting down all your expenses can be a tedious task in the initial days, over time, you will get the hang of it. And, you can save a significant chunk of money in the long run.
Zero-Based Budgeting Method
Zero-based budgeting has been widely used by large enterprises. And, it works well for individuals and families also. Unlike traditional approaches, this method prevents frivolous spending, ensuring every penny has a purpose. It involves draining your income completely to make it zero. It can sound strange. But yes! It is what it is!
If your income is $5000 means, then all your giving right from expenses to savings/investments will make up to that $5000, right? It is how it works.
You need to list down all your expenses such as needs, wants, savings, debts/loans, other essentials, extra expenditures, etc. Then, subtract all your expenses from the post-tax income until you have zero in your hands. Meaning, no money is wasted on mindless things. Everything will be in your control. However, keep in mind that nobody can be perfect from the get-go, it could be a tedious job to allocate the money. But that’s a big thumbs up! Over time, you will master the art of budgeting.
Envelope Budgeting Method
It is a great way of building self-control and discipline in your spending habits. First, you need to know your net income – like the monthly salary, investment returns, rental earnings, income from part-time jobs/freelancing, and the like. Then you need to split it into various categories like dining out, pet care, self-care, groceries, transportation, shopping, entertainment, and so on. This only includes the expenses and not the things like debt repayments, housing, and insurance – as they are fixed and non-negotiable expenses.
Now allot a specific amount to each category or envelope. For instance, 25$ for pet care, and 100$ for grocery. Spend accordingly, and once you exhaust the funds, you have no other choice than to wait until next month. Envelope budgeting effectively prevents credit card debts, however, one downside of it is that you will probably miss out on offers and perks of using credit cards like cashback, or rewards, says ThreeBestRated accountant. Nevertheless, it is a good strategy to control your expenses.
Pay-Yourself-First Budgeting Method
Pay-Yourself-First Budgeting prioritizes paying your saving goal firsthand. If you want to stick with this budgeting strategy, you need to first come up with your saving goals. Whether you want to build a retirement fund or save it for a new home/car, for education, debt management, wedding, investment, or starting a business, determine your saving goal.
After that, calculate your monthly expenses and subtract the expenses from your after-tax income. Finally, you will have some money left to take a step forward towards your saving goals. There you go! The potential downside of this method is that it lets you save a small amount every month. However, remember “even a small drop fills the pot”. This way, it will give you a hefty saving after a period.