When you hear the word “budget,” do you want to run and hide? Although budgeting might have a negative connotation for some, in reality, it’s meant to be a way to help you get control of your money and your life. When you follow any of the trusted budgeting plans out there, you are letting yourself know that you know where your money is going and that you have a plan for it. Making and sticking to a budget lets you pay off debt, build up a cushion of savings, and reach any other monetary goals you have. If you haven’t tried budgeting, or have tried and didn’t like the results, it might be that the method you used didn’t work for you. Give one of these popular, trusted budgeting plans a try instead.
To use the envelopes method of budgeting, you need a collection of empty envelopes and cash. Assign each expense category to one envelope -- for example, you might have an envelope for groceries, one for utilities, and one for transportation. Review past bank or credit card statements to get an idea of what you typically spend in each category for the month, then place that amount in cash, in the designated envelope.
Once the cash in each envelope is gone, you’re finished spending in that category for the month, unless you transfer some cash over from another one. The envelopes budgeting method might be perfect for you if you need a concrete way of seeing where your money is going each month or if you have struggled with overspending on credit cards in the past.
A zero-based budget is similar to the envelopes method. In fact, some people use it in conjunction with envelopes. When you create a zero-based budget, you start with a set amount of income, which you already have on hand, and allocate each dollar of income to a specific task. For example, if your take-home income is $2,500, you might designate $1,000 to rent, $300 to groceries, $200 to transportation, $300 to utilities, $500 to savings, $100 to clothing. Fifty dollars to entertainment, and $50 to cover surprise expenses each month.
Every dollar you earn has an assigned role, so you’re never left scrambling to make ends meet. Additionally, when you use a zero-based budgeting method, you are starting with the actual money you’ll spend over the month, instead of waiting for each paycheck to come in. That means that you might have to wait until you have a bit of a savings cushion built up before you can use the method. Once you get the cushion, you then designate the pay you earn to next month’s budget. For example, the money you earn in February would cover your expenses in March.
Some people find it easier to budget when they have loose guidelines, instead of strict categories. In those cases, the 50/30/20 budget method might be the most helpful. Using this method, you spend 30% of your income on essentials, such as housing, groceries, and transportation. You spend 50% on obligations, such as debt, retirement, and other savings. The remaining 20% of your income can be your fun money, or you can use it to pay down more debt or to boost your retirement savings even more.
Finding your way out of debt is just the first step to a bright financial future, but creating a budget is an important tool to help you reach your goals. If you’d like more assistance with budgeting and debt, contact CESI today.
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