Its ability to utilize all of your income and give equal importance to savings and expenses at the same time.
To tell you the truth, very few budgeting techniques or strategies can fulfil such a requirement in its exact and accurate sense.
This is the one and only vital reason, for which, our financial team sat down to bend and research all the personal budgeting strategies, known to mankind and followed for decades, in every way possible.
Our research and analysis gave rise to unimaginable results, and to our own relief, we have finally figured out which budgeting techniques one should follow so as to keep personal finances in line.
This post is an outcome of our research work on several budgeting strategies listed in all personal finance books. It has been designed specially for you, so that you can choose the budget that you find yourself to be comfortable with.
And finally, we have come up with the best budget of all time, that our team of financial experts have discovered based on some unique financial conditions and formulae!
Hence, let’s get straight to the point and list,
the top 4 personal budget plans you should start using, right about now:
1 Only envelope and no worksheet budget:
Probably the most easiest of all type of budgeting strategies, this envelope style can turn out to be really effective, if you can stick onto it without losing hope.
Many budget experts make envelopes for each and every expenses, and can even make up a customized worksheet for it, but, our financial team says you need not complicate things that much.
You can easily structure out 5 envelopes, or as per recent times, you can open up 5 bank accounts. One each for savings, discretionary expenses, debt payments (if any)/fixed expenses, emergency expenses, and trip/luxury expenses.
Each month from your salary, you divide amounts among these 5 categories. But, you need to figure out how much money you want to allot in each of them.
I always prefer bank accounts than storing cash in envelopes, as in the former, the money that stays overtime accrues a certain interest!
2 The basic 50-20-30 budget:
This is something you can say, a step ahead of the envelope system.
When you find it difficult to manage the envelope system or believe it could have been a little easier, then 50-20-30 rule can save you from the confusion.
This rule is simple, yet again can help you to master your finances without investing too much time on division and distribution of monthly paycheck.
The big part, 50%, covers all your expenses falling under the ‘need’ part. These include day to day expenses, discretionary expenses, and might also include debt payments, utility bills, and insurance premiums.
The smallest percentage, that’s the 20%, is for savings. So, you count out 20% of your salary exclusively for building up your savings. And, how to do savings the easiest way! Open up a bank account!
The last 30% of your salary will make up your luxury expenses, which in other words will take care of all your ‘wants’. These can include trip or vacation costs, partying, clubbing, eating outs, and so on.
But, there’s one thing that’s need to be said about the 50-20-30 rule. It is awesome if your salary falls in the mid range, that is assuming you earn $4-$5K per month. Also, this budget works best in managing fixed and limited expenses.
But, for complicated and numerous expenses, this budgeting strategy might not be an ultimate choice.
Hence, we have chalked out other options that you will definitely find useful, if you are not happy with 50-20-30!
3 The advanced percentage budget:
As the name goes, this is advanced level budgeting, and you can call it a step up from 50-20-30.
In percentage budget, you will set up your own percentages for each of your expenses and requirements.
Let’s say you have too many debts to pay off and the last thing you have in your mind are savings and luxury expenses.
In such a case, you will have to use up the whole 100% of your income for debt payments and expenses.
Now, how much you want to subdivide the salary into your preferred categories of expenses, is totally up to you.
Then again, the percentage budget works well only when you have major expenses or obligations to kill. This is definitely a very focused budgeting technique, but it has its own limitations and drawbacks.
The moment you have too many expense categories, and all seem to be important, then this percentage budget can cease to deliver good results.
However, there’s one big application of percentage budget, if savings is your one and only prime priority.
I have seen people work out this budget pretty well in the forms of 60-40 or 70-30.
Considering 60-40, they deposit 40% of their monthly salary for savings and spend the rest 60%, and the same theory goes with 70-30, 50-50, 80-20… and so on!
4 The zero based worksheet budget:
This is the real budget scene we are entering. Let me remind you, it’s profesional and has a top notch use in each and every economical sector.
This type of budgeting is typically used by big business executives and corporates to adjust their revenues, cash inflow, and outflow.
Zero based worksheet budget requires you to scrutinize each and every single expense you have, minutely and orderly! And, for this you will have to work out with a spreadsheet, pen, and paper.
What you do is, you list all of your expenses that you usually have for a month. Starting from buying a hair pin to booking a flight ticket, from debt payments to groceries.
Each and every one of them should have its own space in your list.
Once this step is complete, you subtract the total expense amount from your total salary. If it’s coming to zero, then the job is done. Else, you will have to think something fruitful with the remaining amount from your paycheck!
You can use that amount for building up extra savings, or say a little bit of treat, or a good date, or whatever your heart wants.
(**The Zero Based Backward Budget**)
This is the best budget plan you can have my friend. Our financial team had to work real hard to come up with a simple explanation of this budget, exclusively for you.
In this budget you do everything just as you would, with the zero based worksheet budget. But, you give optimum importance to savings.
The best way to start, if it sounds confusing, is to channel at least 5% to 10% of your salary to an automated savings account, on your payday.
Once you do it, you are now free to carry on with the normal zero based budget, and start to list your expenses.
By practicing this budget for one month, you will get a rough idea about how much you can save, and how much you need for your overall monthly expenses, in the coming months.
And, plan your next savings percentage accordingly!
With proper help you can
- Lower your monthly payments
- Reduce credit card interest rates
- Waive late fees
- Reduce collection calls
- Avoid bankruptcy
- Have only one monthly payment