3 Beginner-Friendly Budgeting Methods for Every Financial Situation

3 Beginner-Friendly Budgeting Methods for Every Financial Situation

A lot of us live paycheck to paycheck. Most of our salary is spent immediately on bills or debts, ultimately used up at the end of the month. Even if we have little disposable income, we don’t save it for a rainy day and instead spend it on non-essential things.

Since money is tight, some will likely have no emergency fund, make minimum payments on credit cards, or have been charged for overdraft fees more than once. Others might have been paying off debt with another debt. 

Overextending yourself is either caused by not keeping your finances on track or following an ineffective budget system. If you’re a beginner in budgeting and don’t want financial pressure, here are three budgeting methods for every financial situation. 

Pay-Yourself Budget

If you don’t want or need to get into the nitty-gritty of tracking your expenses but have long-term goals to fund, do a pay-yourself budget. It’s a reverse budgeting strategy, where you prioritize your savings over your first and variable expenses. You’ll focus on building up a nest egg and creating a cushion for financial emergencies to secure your future. 

However, if you’re swimming in personal online loans or credit card debts, weigh the financial implications of prioritizing saving over dealing with liabilities. Compare the monthly interests of your savings and debts. If the latter exceeds the former, pay it off first before socking away. Otherwise, you’ll be further behind by paying more interest than you save. 

Quick Steps:

  1. Take stock of your spending 
  2. Identify how much you’ll pay yourself (you can start small and gradually increase it)
  3. List your short-term and long-term savings goals
  4. Adjust as needed
  5. Automate savings

Put your savings on autopilot. A lot of us slack in the savings department for two main reasons. First, we impulsively throw money away on needless buys easily. Second, we simply forget it since we’re too busy slogging away. When you automate your savings, you’ll get zero temptation and no responsibility for savings on you. 

Cash Envelope System

If you’re an impulsive cash-only spender who finds it difficult to make ends meet, follow an envelope budgeting system. The concept is straightforward. Take all of the cash from your take-home pay, parcel it out into your monthly expense categories as you see fit, and place each allocated money in an envelope. 

Envelope budgeting requires you to physically sit down and look at your finances, which can be time-consuming and tedious for some. But it’s worth it. As you get more involved with the budgeting process, you’ll be more conscious and feel accountable for your spending. Consequently, you can control your overspending and impulse-buying habits. 

Quick Steps:

  1. Take stock of your spending 
  2. Set spending categories (fixed, variable, and unexpected expenses, as well as savings)
  3. Withdraw cash
  4. Stuff envelopes with the allotted budget
  5. Spend budget from each envelope until it’s gone
  6. Repeat

Don’t stray from your purchasing plans. For example, if you empty an envelope, you can’t borrow from another one. In other words, until your next paycheck replenishes an envelope, you can’t spend from that category. Yes, it’s very strict. But that’s its essence. It’s meant to help you gain financial discipline, a stepping stone to becoming financially independent. 

Zero-based Budget

If you have an irregular income and still feel the pinch even after managing your money, opt for a zero-based budget. The main problem with a traditional money-management strategy is that you base your current budget on your previous one, which is inflexible. 

Zero-based budget (ZBB), on the other hand, is based on necessity and efficiency rather than budget history. You plan from scratch, allowing you to adapt to unexpected expenses and lean times quickly. Your goal is to allocate all your income to your monthly expenses until there’s no money lying around (i.e., income – expenses = zero).  

Quick Steps:

  1. List your monthly income 
  2. Set spending categories
  3. Minus entire income from your total monthly expenses to equal zero
  4. Track your expenses for the whole month
  5. Re-budget before the next month

Isn’t having no extra dollar left over at the end of the month a financial risk? With ZZB, it’s the other way around. The essence of it is to give every dollar a purpose, either spent or saved at the end of the month, so eventually, you have no money left. Otherwise, if your money isn’t justified or funnelled to a specific purpose, you’ll be at risk of living beyond your means. 3 Beginner-Friendly Budgeting Methods for Every Financial Situation.

Final Thoughts

Since you’re a beginner, you can use the 50/30/20 rule in categorizing your monthly spending. It’s streamlined money management, where you allocate 50% of your after-tax income for your essential needs, 20% for your savings and debt repayment, and 30% to your wants. It’s recommended for those who have a low cost of living but with big financial goals. 

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3 Beginner-Friendly Budgeting Methods for Every Financial Situation