We often hear that a budget is the key to financial success but did you know there are many different types of budgets? Picking the one that works for your current situation is the key to budgeting success.
Should budgeting be more than just knowing where your money goes?
Yes, your budget should be a tool that helps you solve a current financial problem and over time improve your financial situation. It should be a primary tool in helping you make important financial decisions and changing your bad financial behaviors.
Why is it is so important to pick the right type of budget?
Not all financial situations can be solved by a one size fits all approach and not all people can be successful with a single approach. For example, if we are not a detailed person, we would never be successful using a detailed budget that required logging every single transaction.
If you have limited amount of debt, what is a good budget tool to use?
The 50-30-20 budget. 50% goes to needs like rent, food, etc. 30% goes towards wants, eating out, vacations, extra streaming or TV services. And the last 20% goes to freedom which is eliminating debt, saving for emergency and saving for retirement.
What if your goal is to maximize savings?
Then use the 80 – 20 budget. Save 20% of your net income and then spend the other 80 however you like. The important part of this budget is to work towards a 70-30 split or better. This budget will really amp up your savings.
What if you need a budget because you spend too much on wants?
A great tool to change your behavior is to develop a weekly spending budget after essential expenses. Give yourself a set amount of money each week starting on Monday and work to make it last until Sunday. The easy part is that you don’t have to track each expense, just the balance in your spending account.
Is there another way to change behaviors regarding spending?
Instead of a money budget, setup a transaction budget. Only give yourself a certain number of transactions per week, including paying for essentials. All you have to track is the number of transactions you complete per week. You will be surprised how you are better at making decisions when you have to decide between a grocery transaction or an entertainment transaction for your last transaction of the week.