Simple Budgeting Practices That Still Work
To me budgeting is like staying on a diet. They both can get out of control without staying focused.
A budget helps you keep track of your expenses and control your spending.
There are many tools available (including digital ones) to help you prepare a budget. A lot of people, however, seem to prefer using certain classic budgeting strategies that have stood the test of time.
Traditional simple budgeting practices that work never go out of style. Check out the following classic budgeting techniques:
- The Envelope Budget
People who try to make ends meet like this strategy for its simplicity.
Every time you get your paycheck, you cash it and allocate the money by putting them into appropriate envelopes.
Each envelope is marked with the purpose for which the cash is intended. One envelope could be marked “rent,” another marked “food,” and still another marked “utilities.” Every time you need to spend or pay for something, you get the cash from the appropriate envelope.
This technique is simple, straightforward, and physical. You actually see how much money you have left to spend. By counting the cash left on the envelopes, you know exactly if you have money left over for a treat.
- The Pay-Yourself-First Budget
This is a powerful strategy for putting aside money for a long-term goal.
After you get and cash in your paycheck, the first thing you do is to set aside money intended for your goal. Then you sit down and figure out how to apportion what is left to pay for expenses like rent, utilities, food, entertainment, etc.
This technique is patterned after the practice applied for 401(k) and for similar retirement or pension plans. Automatic deductions are made from paychecks before the employee receives his pay so he is forced to spend only what remains of the check.
- The Traditional or Zero-Balance Budget
This strategy includes a line-up of expense categories (“rent,” “food,” ”utilities,” among others) along with a budget or target amount to spend for each category. Aim to spend less than what you earn in a given month so that you get extra money as savings.
To get maximum value from using this strategy, you have to put in a lot of work, time, and attention. You can’t take short-cuts. Used properly, this strategy shows you exactly where each dollar goes. You’ll gain great insight on your spending habits. You’ll be able to set realistic goals and know exactly where to cut back.
- The Rule-of-Thumb Budget (50/30/20 Budget)
This strategy became popular following the publication of the book “All Your Worth” which was written by Ameila Tyagi and Senator Elizabeth Warden.
The strategy recommends that you spend money according to the 50/30/20 rule. 50% of your total take-home pay goes to basic living expenses; 30% to things/activities you enjoy, and 20% to savings.
If you have hefty bills to pay, it may be difficult to limit yourself to just 50% of your take home paycheck to pay for basic necessities. If you’re fresh from school and just joining the work force, this may be a good budget to live by because it enables you to quickly build your savings.
There are several factors (personality and lifestyle, among others) that affect your choice of a budgeting strategy. These classic strategies have been around for a long time because they work. Choose any of them to help you stay on top of the money you earn.