Budgeting is a way to save yourself from embarrassing phone calls for help. It is a way to prevent spending more than you have, or forgetting to pay an important bill. The last thing anyone wants is for their water, gas, or electricity to get shut off. Budgeting will prepare you for any emergency that you come across. Nonetheless, it will also help you pay off debt faster, raising your credit score.
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What are Different Types of Budgeting Methods?
There are different types of budgeting methods out there. There is the 50/30/20 method, zero-based budgeting, 60% solution, bare bones, Paycheck budgeting, calendar budgeting.
(1) 50/30/20 Budgeting Method
The 50/30/20 budget, as you can likely figure out, is a way to divide up your income into categories. Similarly, you put half your income into essentials like food, utilities, shelter, transportation, medication and so on. 30% goes to buying what you really want whether entertainment, amazon shopping, going out; or new clothes that aren’t needed but you really want, and things of that nature. And the last 20% goes towards finance goals such as savings or stocks.
(2) Zero-Based Budgeting Methods
Zero based budgeting is an accounting technique that was developed in the 1960’s to 1970’s by a guy named Pete Pyhrr who was an account manager at Texas Instruments, the calculator people! Zero Based Budgeting helps you assign your money to savings, debt and expenses. You can change the categories every month, or you can change them up based on upcoming events like. Birthdays or other celebrations, or even the dreaded tax day if you owe!
How to Start?
You need to know how much money. You are bringing in first of all, and you also need to know what your expenses are. Accordingly, you can either track them for a few months or you can look back at your bank and credit card statements and print them out and use different colored highlighters to track your spending. This is a fun choice for the artistic type of person!
Okay, So Give Me An Example!
Monthly Income: $4,000.00
Gas Utility $88
Gas for Vehicle $80
Car Payment $450
Student Loan Payment $250
Credit Card Payments $500
Amazon Gift Card Balance $100
Amount Left: $0.00
Is There an Easier Way?
This way is actually super easy! There are actually computer software programs that can help you achieve this, or even apps for your phone or tablet! Some of the apps let you change stuff around…say your water bill doubled due to a leaky toilet…. I like to always put money onto an amazon gift card balance for those last-minute moments when you forget a birthday or break your favorite shoes.
What are the Benefits of Zero-Based Budgeting?
• You know what money is coming in?
• Get details on how much is going out and where it is going?
• Next, this plan is fully customizable;
• For businesses, managers will need to justify all of the operating expenses they manage.
What are the Cons or Downfalls of Zero-Based Budgeting?
• If you buy something unexpected and out of your categories, it will throw off your whole budget;
• Also, it can be time consuming to set up and make adjustments;
• If you are a freelance worker or your monthly income varies, this could be problematic;
• Promotes more short-term thinking instead of long-term planning.
How Can I Incorporate Zero Based Budgeting Into My Business?
You can actually incorporate zero based budgeting in stages. You need to identify and come up with descriptions for each category, often called decision packages. Moreover, you would evaluate the decision packages to make sure they align with the overall goal of the company. Next you need to prioritize the packages or groups from most important to least important. Finally, you would allocate resources/amount of money to each section.
(3) 60% Solution
Just like a few of the other budgeting methods mentioned here, this methods allocates a portion of your income dedicated towards committed expenses (60%) such as rent, gas, utilities, debts, groceries and so on. The other 40% can be broken down into long- and short-term savings and money to just spend on whatever you feel like.
(4) Bare Bones
With bare bones budgeting, you only spend what is absolutely necessary and save the rest. similarly, this is obviously not the best budgeting solution for someone that prefers luxury items or prefers things instead of moments.
(5) Paycheck Budgeting
Instead of budgeting an entire month’s worth of pay, with paycheck budgeting you budget each paycheck. You could get paid weekly, bi-weekly, monthly or some other arrangement and you only budget the paycheck you have.
(6) Calendar Budgeting
Instead of using a calendar just for birthday, anniversaries or meetings, you can put what bills are due when and what the amount is on a calendar so you can see everything that is due all at once.