- Can You give a Definition of Budgeting?
- How Do I start To Manage Finances?
- What are some of the best apps for budgeting?
- How Do I Calculate My Budget?
- So What is the 50 30 20 Budgeting Method?
- What is Zero Based Budgeting (ZBB) and why is it important?
- What is the envelope system?
- What does it mean to pay yourself first?
- Are there any tips for how to stick to a budget?
Budgeting, personal finance, managing finances…I know these are 3 phrases that A LOT of people are terrified of. Most people are never taught these things in school so I understand how hard it is to learn and get started. Money Tree Network was created to help beginners learn the personal finance basics.
Today we are going to answer some of the burning budgeting questions that you likely have been asking! We will start off with the definition of budgeting, how to start managing your finances, and then how to actually budget.
I know budgeting is typically seen as a restriction on what you are allowed to spend but I am here to change that bad rap. To start defining a budget we really have to understand what a budget does. To put it in simple terms, budgets help you to manage your money.
Dave Ramsey, my finance idol, defines a budget as a plan for what you’ll do with your money. He talks about how a budget is definitely not a restriction, but more of a freedom to spend. When you think about it, a budget allows you to put money away for a specific expense.
If you have $100 set aside for dinner once per month, you should not feel bad about spending that money, because you know you can afford it.
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How do I start to manage finances?
If you Google how to manage your finances, you will see lots of results about budgeting methods, theories, and more. I am breaking down some of the best apps, methods, and definitions for budgeting so that you can have a one-stop shop for all your budgeting questions.
If you are looking to manage your finances, I would suggest paying off debt, create a personal dream, create and stick to a budget, start saving, and create an emergency fund to avoid going back into debt. These are all extremely important steps to start managing your finances.
What are some of the best apps for budgeting?
There are so many apps available to help you start budgeting. They allow you to designate money for different categories and help you keep track of it all. These apps are a lifesaver for so many people!
Apps such as Mint, Personal Capital, and EveryDollar can all help you save some serious dough. They all have unique pros and cons but at their core, they all help you manage your finances.
How do I calculate my budget?
Yes, I know calculating your budget is not very much fun, but that is why I am here! There are a few different budget methods that you can apply to your own personal finances.
- 50 30 20 method
- Zero based budget
- Envelope system
- Pay yourself first budget.
Now, I will go into more detail about each of these in other questions, but I wanted to give you an idea of the 4 budgeting methods first.
So what is the 50 30 20 budgeting method?
Defining the 50 30 20 budgeting method is simple!
- 50% of your budget goes towards your necessities
- 30% of your budget should go to your wants
- 20% should go to savings
I am going to go into slightly more detail about each below.
- 50% of your entire budget on the necessities in life: Some of these necessities may include insurance, mortgage/rent, basic food, and utilities. The things you NEED to live.
- 30% towards your wants: Some of the wants in life may include eating out, going bowling, or going on vacation. Some people struggle to tell the difference between their wants and their needs so you really need to think about it before deciding which category it belongs in.
- 20% away into your savings: Putting some money into your savings, will help you down the line. When you are looking to buy a car, buy a house, or retire, you will have some money to spend.
This is my favorite budgeting method because it gives you clear guidelines as to where you should put your money. I personally like to switch the 30 and 20 when I use this method because I am a huge saver. You should try to keep your needs to under 50% of your budget though because if they get too high, you run the risk of struggling with money in the future.
What is Zero Based Budgeting (ZBB) and why is it important?
- Write down your total income
- List all of your necessary expenses
- List all of your wants for the month
- Put the rest towards savings
Zero based budgeting is a budgeting method that requires you to think about every last dollar that is spent. In this method, you start out by writing out your total monthly income at the top of the page.
You then write out all of your necessities, and start subtracting. Once you figure out how much money you have after subtracting out your necessities, you list out your wants. Once you subtract all of your wants, the rest goes straight to savings.
What is the envelope system?
The envelope system is a different kind of budgeting. In this budget method, you take out your entire salary in cash. You then break out a few envelopes and start writing your budget categories on each envelope
Some of these categories may include
- And more!
At the beginning of the month you allot yourself a certain amount of money into each envelope. Throughout the month you spend money directly from the envelope.
Once you run out of money, you should stop spending in that category. This is a great budgeting method if you struggle with self-control because once the money is gone, it is gone.
What does it mean to pay yourself first?
The pay yourself first method is great for people who are trying to save for a specific item. In this budgeting method, you would figure out what you are saving for and then backtrack to see how much you need to save each month.
As an example, if you are trying to save for a $1,000 laptop and you have 10 months to save, you would automatically take $100 out of your income each month. The rest of your income would go towards your necessities and wants.
Are there any tips for how to stick to a budget?
There are so many tips for budgeting that I don’t even know where to start. Having a savings or financing goal, understanding why you need to budget, and having a high-def dream are a few of the many tips I could possibly give you.
My personal favorite is having a high-def dream. If you know exactly what you are saving for you will be able to easily budget. Instead of dreaming about traveling, think about where you want to travel, start looking at hotels in that area, and think about different things you want to do when you get there. This will help you to stay motivated to budget.