After you see where you typically spend, then you can start moving forward with a budget. Budgets can seem complicated and boring, but what it drills down to is spending less than you make each month — it’s as simple as that.
While tracking is about examining what you’ve already spent, budgeting is about looking forward to what you will spend. And just like no two people are the same, neither are budgets. Here are a couple of jumping-off points. Try one out, or mix and match a few to find the perfect fit for you.
50/30/20 budget
The 50/30/20 rule breaks down your after-tax income into three buckets:
• 50% on needs
• 30% on wants
• 20% on savings
Needs are defined as things you must pay, as well as items necessary for survival, such as:
• Rent or mortgage
• Car payments
• Healthcare
• Groceries
• Insurance
It also includes minimum debt payments.
Wants are things you spend money on that are nonessential like dining out or entertainment activities. This includes the “upgrade cost” of things.
For example, you might pay for super fast internet or more data on your phone plan. Beyond the bare minimum pricing, these charges fall into the wants category.
Finally comes savings. This 20% can be divided among a few different accounts, including retirement, emergency funds and investing. While minimum debt repayments fall under needs, anything above and beyond that monthly charge can be taken from savings.
While it’s not for everyone, the 50/30/20 rule can be a good introduction to budgeting.
Zero-based budget
Zero-based budgeting is less about percentages, and more about the big goose-egg: zero. Each month, you’ll want your expenses to match your income, essentially leaving nothing left over by the end of the month. Each dollar will be assigned a job as it comes in. Bottom line, if you make $4,000 a month, your expenses should add up to $4,000 a month.
Sounds simple, right? It can be, with a little practice. After tracking your monthly income, you’ll need to take note of your monthly, then seasonal or annual expenses.
Seasonal planning is essential in zero-based budgeting, you’ll want to plan ahead for these expenses and allocate a little to it every month. Once you have your income and costs down, you’ll subtract the later from the earlier.
If this doesn’t add up to zero right off the bat, you’ll need to balance your budget. That might mean taking a look at your expenses and cutting a few line items.
Now, a word of warning. Just because the concept is called zero-based budgeting doesn’t mean you’ll want to end each month with zero dollars in your bank account.
Instead, you should have zero left to budget — meaning if there’s a month sitting in your checking account, it has a job. That could mean it’ll be spent in a few months, or it’s simply getting transferred over to savings.
Budgeting apps and online tools
For the tech savvy, pen, paper and spreadsheets might not do the trick. If you’re looking for a way to passively track your dollars and have access to your budget at the swipe of a finger, you might want to use an app to track your budget.
