4 Budgeting Styles:  Which one works for you?

These days you’ll find a myriad of books, programs, seminars, podcasts, videos and articles that focus on wealth building, investing, budgeting and all sorts of money matters that can sometimes be overwhelming.  But when you think about it, you just need to start with a simple budgeting technique.  However, with all the different opinions and resources, which one is right for you?  Below, I’ve highlighted 4 different budgeting styles that you can compare and find one that fits you and your lifestyle best.

1. Reverse Budgeting

For people who don’t practice budgeting, savings usually comes from the money left from their income after all the monthly expenses, dues and purchases are paid and made.  If there’s none left, then they end up without money saved and worse, unpaid bills and debt carried over to the next month.  With Reverse Budgeting,, you do the opposite – SAVE FIRST and whatever is left is yours to spend.

2. 50-30-20 Plan

The 50-30-20 rule of thumb is introduced by bankruptcy expert Elizabeth Warren and her daughter Amelia Warren Tyagi, in a book they co-authored together entitled “All Your Worth:  The Ultimate Lifetime Money Plan.”  The plan is to spend 50% of your earnings on NEEDS, 30% on WANTS (that includes mobile plans, cable bills, cosmetic or non-mechanical car repairs, etc.) and the remaining 20% for SAVINGS or DEBT REDUCTION.

3. Envelope System

Next is a system popularized by America’s trusted voice on money, Dave Ramsay.  This system requires you to figure out major budget categories and separate each in different envelopes with specific target amounts.  For example if your budget for groceries is $300/month (according to the US Bureau of Labor Statistics, the average American family spend $330 each month for groceries), put $300 cash inside an envelope labeled “Groceries” and every time you go food shopping, get cash from that envelope ONLY.  No money from that envelope should be spent anywhere except groceries.  This way, you will really get the feel of “spending” cash and see when you are getting close to “running out” of it.

4. Tracking Expenditures Down to the Cent/Dollar

This system is time-consuming but is very helpful if you want to see where each cent goes and reveal areas for improvement.  What you do here is to record all of your expenditures down to the last cent or dollar through the use of pen and paper, excel spreadsheet or mobile apps.  I personally use the free app called “Spending” and back it up with the old-school pen and notebook.

About Toni Marie

Toni is a regular contributing author on Guest Money Blog. In addition to writing about money topics, she also likes to write about relationships and health.
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