Its the end of the month. Your mortgage/rent and other bills are paid. You did your grocery shopping, filled up your gas tank — you even had enough money left over to contribute to your retirement fund, cover an unexpected cost, and dine out a few times.
Our personal budgeting guide is full of tips to help you live more comfortably and avoid that end-of-month financial scramble. With just a few of these budgeting rules in place youll manage your money more effectively to meet your goals and turn that dream into reality.
First things first, a budget is a short- or long-term financial game plan for tracking your cashflow and expenses. Whether you do it by hand, in a spreadsheet, or using a convenient app, there are plenty of budgeting approaches to choose from.
How To Manage Your Money (50/30/20 Rule)
Effective budget strategies to try
You can try several different budgeting strategies to see what best aligns with your goals and needs. Review this list of 12 effective budget strategies to see which one will help you reach your financial objectives:
1. Subtraction budgeting
Subtraction budgeting is one of the simplest forms of budgeting. To use subtraction budgeting, simply add up all your monthly expenses and then subtract that total from your overall monthly earnings. The amount you have leftover is what you can use for savings and entertainment.
2. Cash budgeting
Cash budgeting, also known as envelope budgeting, asks you to use actual cash for purchases and expenses rather than managing digital currency. Having cash often helps those who have trouble imagining their money in digital form track it more easily.
With a cash budgeting system, rather than putting your paycheck into your bank account, you actually cash it and use the physical bills and coins to pay for your expenses. Some people put the specific amount of cash they need for expenses like rent and utilities into sealed envelopes until they pay those bills, so theyre not tempted to spend it on other things.
3. Proportional budgeting
With a proportional budgeting strategy, you divide all your expenditures into three categories—savings, needs and wants. From there, you determine which percentage of your income you want to go dedicate to each of these categories and divide your income up into those categories accordingly.
4. Two bank budgeting
Using the two bank budgeting strategy, you pay yourself before paying any other expenses, which allows you to add to any savings plans or purchase any desired items. One effective method of this strategy is to open a checking account in which you deposit your paycheck.
Then, set up an automatic transfer from that account to a secondary bank account, leaving a small portion of your paycheck behind in the original account. Live off the money in your secondary account and leave the savings from your original account for emergencies or other purchasing goals.
5. Automatic budgeting
Automatic budgeting takes advantage of built-in budgeting systems provided by banks. Set up automatic bill pay and automatic transfers to ensure you pay all your expenses on time and meet your savings goals without having to make any actual payments or deposits.
6. Online or app budgeting
There is a multitude of online systems and apps that can help you track your spending and effectively create a personalized budget that meets your goals and needs. Consider using one of these programs to help you establish a unique budgeting system specifically for you and your spending patterns.
7. 50/30/20 budgeting
The 50/30/20 system is a traditional budgeting strategy that uses pre-established ratios to help you manage your money. Essentially, with this strategy, 50% of your income should go to needs like rent and utilities, 30% should go to wants like dinners out and other entertainment and 20% should go towards savings and paying off any debt you might have.
8. Multi-account budgeting
The multi-accounting budgeting system is a digital version of the cash envelope budgeting strategy. Using this system, you open multiple bank accounts, each dedicated to a specific expenditure or savings goal. You can use automatic transfers to send the appropriate amount of money to each account and automatic bill pay to ensure you pay your necessary expenses on time.
9. Zero balance budgeting
A zero-balance budgeting approach is another traditional strategy that focuses on ensuring you have enough of your income set aside to cover your necessary expenses. With this approach, you create a list of every expense you have and how much money you need each month to pay those individual expenses.
10. Savings and emergency budgeting
For those interested in maximizing their savings, a savings and emergency budgeting strategy is especially effective. With this method, a certain percentage of your income goes into a general savings account you can use for specific purchasing goals like a house or a car, while another percentage goes into an emergency fund for unexpected expenses like a car repair or loss of a job.
11. Prepaid debit card budgeting
A strategic budgeting approach for those who dislike carrying cash but struggle to curb their credit card use is the highly effective prepaid debit card budgeting strategy. It functions as a combination of the cash envelope system and the multi-account budgeting strategy, but with the use of pre-paid debit cards for daily expenses rather than using actual cash or a credit card or debit card tied to a bank account. This ensures you cannot overdraw your account and spend outside of your means.
12. Priority budget
A priority budget entails determining your own specific priorities rather than relying on predetermined priorities set by others. You make a list of all your expenses and spending priorities and arrange them in the order thats most important to you. From there, you can determine how much money you want to dedicate to each category.
What is a budget strategy?
A budget strategy is a formal approach to managing a specific collection of funds. Many individuals use budget strategies in their personal lives to ensure their expenses dont exceed their income. Others use budgeting strategies to help reach financial goals, like purchasing a new car or saving a certain amount for retirement. Many professionals also use budgeting strategies at work to help ensure their department or organization can pay for all its expenses and potentially invest in future opportunities.
Tips for maintaining your budget
Deciding on a budget strategy is an excellent first step in effectively saving your money. Ensuring you follow the guidelines established in your budget will help you meet your short- and long-term budgeting goals. Use these tips to help you maintain your budget:
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