Budgeting is a great way for anyone to limit their spending or achieve their financial goals. It can keep people from overspending or being more responsible with their money. It’s extremely easy to act irresponsibly with money, especially for teens. Budgeting is how you can avoid that.
Here we’ll point out the benefits of each budgeting format and explain who it’s most beneficial for!
50/30/20 Budgeting
50/30/20 is arguably the most talked about form of budgeting. In this method, you allocate different percentages of your net income to different spending categories–50% for needs, 30% for wants, and 20% for savings. By creating these portions for your spending, you can give yourself guidelines for what to do with your earnings every month. Of course, if you would like to cut down your wants or needs category in order to increase savings, that is possible and a great idea!
The 50/30/20 method is the one of the easiest ways to budget as it is simply a matter of a few calculations. Although the percentages can be changed, it is important to be saving 20% at minimum and ideally greater.
Zero-Based Budgeting
In zero-based budgeting the goal is to allocate all of your income to different expenses, including savings, to achieve a left over total of zero dollars. This means that you must look at all of your different expenses and place the funds for all of them in order to reach your base of zero after all expenses have been distributed.
The purpose of zero-based budgeting is to ensure that you know what every single dollar is going to. This can prevent you from overspending in one place impulsively and provide structure in your month-to-month living.
Envelope Budgeting
Envelope budgeting–whether the envelopes are metaphorical or not–is a method where you divide specific amounts of money into different spending categories. In envelope budgeting, you are supposed to make your budget inflexible, as in, once the money in one category runs out, you can no longer spend in that category. Inversely, if you don’t spend all of your money in a category, you can choose to roll it over into next month’s budget, add it to your savings, or add the money into another category.
Ultimately, the style of budgeting you decide to use is based on personal preference. Some may thrive with envelope budgeting while others prefer the straightforward approach that is the 50/30/20 method. The choice lies with you and any method will help you to build good spending habits that can better your future.
Articles Referenced
Comments