It’s a new year and many of us have financial goals we are hoping to achieve. Whether your goal is to pay down debts, save for large expenses or just be better off financially in 2023, a budget can be a great first step to help you meet your goals. Envelopes? Spreadsheets? Percentages? Which budgeting app should you use? The answer is the one that works for you and that you can consistently stick with to stay within your budget. Try one of the following methods to get started.
Percentage Breakout
With this method, after-tax income is broken down into percentages that are allocated to each spending category. For example, the 50/30/20 method allocates 50% for needs and essentials, 30% on wants and non-essentials and 20% is assigned to savings or debt repayment. Alternatives could be percentages like 70/20/10 or even 80/20. Use percentage breakouts that work specifically for you; these percentages are not set in stone and vary person-to-person.
Zero-Based Budget
This method gives you a name and a place for every dollar that you bring in through earnings. A zero-based budget leaves zero unnamed dollars at the end of each month because all dollars are allocated to a category. This requires you to plan upfront, so you know exactly where and how you need to spend each dollar. This could be great for those who always tend to spend leftover money at the end of a pay period.
Pay Yourself First
You’ve worked hard for your money, so pay yourself first! This is accomplished by setting aside a portion of your income into a savings account, retirement account or emergency account before paying any bills or spending any money. Even with the best of intentions something always seems to come up, so planning for savings at the end of a pay period often doesn’t end up happening.
Envelope System with Categories
For this method, take your income and subtract your expenses. Each expense falls into a category and each category has an envelope with a cash amount in it to cover those expenses. When the envelope is empty, the money for that category is gone. Using cash may help you stick to a budget by physically seeing how much money is available to spend in each category and may be best for those who commonly overspend in specific non-essential areas.
Budgeting Apps
If technology is more your forte, there are many budgeting apps to choose from to help you plan your spending and track your expenses over time.
Finances are very personal, so there is not one budgeting method that works best for everyone. Sit down and look at your own finances to see which method works best for you and find one that you can stick to.