That sounds corporate and governmental, so what is a budget for us regular people?
Budgeting is the process of making plans in terms of dollars and cents. That means determining how much to spend on each expense and assigning each dollar earned to specific needs.
Why do I need help in creating a budget for 2022?
Budgeting is much easier than people give it credit for. However, learning how to budget is much more difficult. It’s like riding a bike: once you get the hang of it, it’s easy, but getting started can be tough.
Getting help from online resources, budgeting apps, or financial advisors can be the “training wheels” you need to create a successful budget.
Types of Budget
There are so many types of budgets – some apply more to corporations and government, while others are used by average people running a home. Today, we’ll be focusing on budgets for individuals, not corporations.
This is the most-used budgeting method, loved by both corporations and households. This method puts every penny of income in a category, so you know exactly how much you can spend every month. Zero-based budgeting can be a great way to practice financial discipline.
Value Proposition Budgeting
In this method, you need to justify every expense. Does this expense add value to your life? How much? Does the cost outweigh the benefit? This is a great method to explore if you’re new to budgeting and need a way to reflect on your purchases.
This is a method of “top-down” budgeting. Where are the activities that need to be undertaken? “Activities” in this case can cover everything from replacing a vehicle to planning a vacation. Find out the cost associated with those activities and adjust your spending accordingly.
This budgeting method is great for people who are very reward-driven and want to see exactly what benefits their budget gives them.
What is the 50-30-20 rule?
It’s a budgeting rule of thumb that says that 50% of total income (after-tax) should be budgeted for personal needs, 30% for wants, and 20% for saving and investment.
This means that half your income will pay for housing, food, clothing, transportation, and any bills you can’t avoid. A third will be going towards your subscriptions, going out, and anything you don’t necessarily need. The last 20% can fill out your emergency or retirement savings, investing, or paying off debts.
This method is great for people who like to have some flexibility within these categories and want something simple.
Why Budgeting is So Important in 2022?
Budgeting not only shows you where your money went, it gives you the power to determine where your money goes. Budgeting your income also helps you cover all your expenses without leaving anything important unattended. It helps you to identify where you’re spending money on things you don’t need (and may not even want). From there, you can put your money where you want and need it. Budgeting is very individual – what you need may not be what someone else needs.
How to Create a Budget Plan in 2022?
When you set out to create a budget, your first challenge will managing expenses that need to be included in your budget.
You will need the following two steps to determine which expenses should be considered.
• Your personal priorities and preferences
The first step in creating your budget is thinking about what your end goal is. Your priority might be living a debt-free life or being financially independent. You may want to take your family on a vacation or move from renting to owning your home.
It all depends on your priorities. What you want out of your budget is the measuring stick you use to create it.
• Your earnings and expenses
After you set your goals, the next step is income and expenses. This should be no surprise, since income is what you budget with and expenses are what you budget for.
Sitting down and tracking your income and expenses will set you up for success, no matter what budgeting plan you choose.
Best Free Budget Apps in 2022
Budgeting apps are helpful and convenient. I mean, managing your money in real time, right from your phone? Sign us up! Many budgeting apps even link to your bank account, so your income and expenses are tracked automatically.
The best bugeting apps are free (or low-cost), easy to use, and have highlights that match your budget style.
1. You Need a Budget (YNAB)
YNAB deserves the first spot on our list for a few reasons. With YNAB, you can link to your bank account, import your info from your bank statement, or manually into your transactions.
Then, as they put it, you “give every dollar a job”. Whether it’s emergency savings, a couple of dollars towards a new pair of jeans, or paying your rent, every penny of your income is accounted for. The neat thing about YNAB is their extensive library of resources. Blogs, videos, even a podcast – YNAB has lots of ways to learn. They want to help you budget not just for this month, but for next month.
Mint offers the most famous free budgeting app. Made by financial giant Intuit (famous for TurboTax and Credit Karma), this app has a little bit of everything.
Mint gives you several ways to track your monty, as well as automatic sorting options. Mint will even recommend different investing, saving, or credit boosting options that fit with your budget.
3. Simplifi By Quicken
Simplifi by Quicken is one of the few apps that will automatically generate a budget for you. Just connect your bank account and Simplifi will analyze your income and expenses. Then, it’ll spit out a custom budget based on your spending habits.
You can even connect 401(k) accounts and investments to get a complete financial picture in one place. Simplifi isn’t free, but the annual subscription works out to $3 a month. (Worth it!)
4. Personal Capital
Personal Capital claims its spot with the best budgeting apps for 2021 because of its wealth-building feature.
The app’s dashboard allows you to determine your net worth, see whether you’re on track for retirement, as well as checking your budget. They even have an add-on that connects you with a personal financial advisor.
Zeta was specifically designed for married couples and families. This app is great if you have a joint account and need help managing it. Zeta helps you and your partner focus on your goals, and gives you financial exercises to reach them.
6. Pocket Guard
PocketGuard has a reputation as the best app for over-spenders. Its features are mostly based on helping customers control overspending. You can connect multiple accounts, and the app will track expenses, detect when to save, and alert you when credit bills are within your budget.
The app is free, but the add-ons are worth the investment, as well.
7. Good Budget
Goodbudget shines in helping people with using the “cash envelope” system in a digital world. Goodbudget helps you manage your finances, while still spending your money on what’s important to you.
Anytime you don’t use all the money in one “envelope”, it carries over to the next month. This lets you build up emergency savings without even realizing it!
Wally is a budgeting app that allows you to follow costs and put forward saving objectives with your partner, family, or roommates. It’s the perfect app to help you save for a trip together, manage when the rent gets paid, and more!
All Together, Now: Budget, Budget, Budget
Whether you use a budgeting app or not, budgeting is the key to financial freedom. You can’t meet your goals without one. Goals aside, you’re much more likely to go into debt or struggle with the paycheck to paycheck cycle without a budgeting app.
The key is organizing and learning about finances so you control your money instead of the other way around. For more tips, tricks, and articles like this, subscribe to Penny Calling Penny’s newsletter!