Choosing a Budgeting Method

Given that managing money is so important to us- it allows us to put a roof over our heads, food on the table and keep our Netflix accounts, it’s no surprise why people get so worked up about it. What many people do is overcomplicate their financial situation, because the way in which they live is so important to them. The reality is, that often the simpler methods and techniques are more effective. We all have different lives, different needs, and different wants and therefore we will have different budgeting strategies, but the people who are sensible with their money will all budget and manage their money, regardless of how they live their life. Bear in mind that our societies need us to spend and pay our 20% value-added tax on, so we are constantly faced with goodies that we feel would enhance our lives, when invariably, they won’t and that ‘must have’ will lie dormant in our cupboard for a few years till we get rid of it – our lives are all about spent spend spend, spend, hence, need and want – and this is what our governments want us to do, actually they quite like us going into debt, as the 45%+ a year interest that credit cards really charge, a very slippery slope to misery. So remember a tip, sleep on it first – do you still feel such an urgent need in the morning? Then go and take the card out of the freezer and wait for it to thaw out – now – do you really still need to make the purchase? You must fight the craving, the addiction, for those spontaneous impulse purchases, they quickly add up.

Here are just a few of the best, most recommended budgeting strategies. Listen, and think about which one suits you best:

PAY YOURSELF FIRST – The Pay-Yourself-First Budget is very simple. The most simple, in fact – and it does what it says on the tin. The reason behind it being the simplest, is because it requires the least amount of planning and actual strategy. With the PYF Budget, the earnings that you get are divided into two categories. Savings, and whatever you want. That’s it. After you have allocated a certain amount to your savings for future needs, the rest of the money is yours to do with as you please. Strangely, however, it is probably most commonly used by people on different ends of the budgeting spectrum.

People earning money for the first time in their life, for example, school children with a part-time job, or by budgeting experts or high earners with large expendable incomes might tend to use this technique for long term saving planning as money is not the most vital aspect of their lives and they respect it. Again, this could be because they have a good grasp of financial responsibility, have budgeted well and therefore don’t need to worry, or have enough to spend with the knowledge of financial stability regardless.

ZERO-BASED – The Zero-Based Budget focuses on assigning a monetary rate to every aspect of your financial expenditure. Given that life is random, you can’t predict what is going to happen in the future, therefore it’s useful to be prepared for all potential circumstances. This is where this budgeting technique excels. By giving each aspect of outgoings, e.g., bills, rent, food, leisure, Amazon, transport etc., you are creating a strict path for yourself to follow which can allow to stay within the limits of your earnings. Yet whilst being strict, it is also flexible. If you’re going on holiday for a week in a different country, you might put more money into the ‘transport’ category, however you not always going to need that much. The Zero-Based Budget allows you to create your budget around your schedule, so if you know you’re not going to need a big transport fund one week, you can roll-over the money, and add it to a different category, one which might more necessary.

The Zero-Based Budget best works for people who are strict with their finances, and either want to know where they’re spending, or need to know. New, inexperienced budgeters also tend to warm to this technique as it is very ‘hands on’, and gives a greater sense of control over personal finances, then some of the other, more laissez-faire, relaxed and carefree in their approach.

ENVELOPE – The Envelope Budget is the most traditional, and physical in that with this technique, you will put and keep your money, cash, in envelopes. It might not seem like the most secure place to keep money, but it’s more about the principle than it is about the security. Just like with the Zero-Based Budget, the Envelope Budget forces you to dissect and assign money to different areas of your life. Once you put that certain amount of money in an envelope, that’s all you have to spend. What the envelopes force you to do, is to be disciplined. Say you give yourself £100 to spend on fashion, eating out and Starbucks lattes, if you run out, and dip into, let’s say, your ‘rent’ category, you ruin the entire system.

The Envelope System is used primarily by people who need to be stricter with their earnings. It’s easy to get carried away with spending, as it’s a lot easier to spend than save, so if you need a hard reset with your budgeting method, then the envelope technique would be useful.

VALUES FIRST – The Values First System works by creating a list of what matters to you most in order of most important to least important. We are all deserving of enjoyment, irrespective of our personal income. Many of us will work hard for our pay and lose up to 50% of it in obligatory taxes, and therefore when it comes to spending it, we will want to spend it on the things that matter most to us, priority needs first, and then that which give us the most pleasure. The Values First Budget lists those very things, and you can create your budget around them. Given that you’re most likely to spend more money on what’s important to you, then there is a chance that you’ll be unable to afford everything you desire. It’s here where you’ll have the either reassign your budget, or leave it out entirely – don’t buy it, do without Sleep on it.

This system is most beneficial for people who have trouble sticking with and following other budget strategies because of the emotional attachment. I think it’s safe to say that no one wants to pay bills and rent, but if you didn’t you wouldn’t have a claim to your property, as well as not being improve it, or provide yourself and others with heat and electricity. So, it’s understandable why people might have other more important aspects, at least to them, for what they want to finance first. This is who this budgeting strategy helps.

50/30/20 – Finally, the 50/30/20 Budget. Arguably the most simplistic when budgeting actually has a big impact on the way you live, unlike Zero Based. Simply, the 50/30/20 Budget works as a ratio of your expenditures. The ‘50’, is your needs. These are your bills, rent, food, shelter etc. The ‘30’, is you own personal wants. This could be a new game, going out for food, buying a present for a family member. Lastly, the ‘20’, is to be put into your savings for potential debts or emergencies. It effective as it covers all bases, and it works well, because it’s simple. The 50/30/20 Budget is also flexible. The only reason it’s called what it’s called is because that is just a recommendation. It’s up to you to decide how much you need or want to split up.

As stated, it’s ideal for people who want to cover all bases financially. Therefore, it’s most suited for people who either desire financial security in every aspect of their life, or people who are looking at the bigger picture with their finances. Budgeting really comes down to you – the individual. No one can really tell you how to spend your money. Once it’s yours, it’s yours to do as you please. However, it’s important to note that money is important. Very important. Therefore, it’s a good idea to be wise with your spending.