A simple way to ensure financial stability in our lives is to have a plan to know our income versus expenditures, and leftover funds if any. Such a financial plan or tool which works as a framework or guidance to balance our money is the Budget. Nearly 18% of employees in the U.S, who earn USD 100,000 and more live from one paycheck to the next as they do not have any strategy to maintain or manage their funds.

Budgeting: What is it and how to plan it?

The budget is a rough financial statement, which gives a complete bird’s view of the flow of income and outflow of money. It will include a detailed listing of all our monthly income sources, and monthly expenses such as mortgage loans, and rent utility bills, which are our core expenses, followed by secondary expenses such as entertainment, clothing, and travel.

While many believe that creating a budget is a difficult task, takes too much time, or is not needed since such calculations can be made in the mind itself, time-consuming, or calculations which are simple and managed in the head or I earn a high salary and hence I do not need a working budget.

However, there are several advantages of budgeting:

1. Ensures you stay out of debt

2. Ensures you have a retirement fund

3. Ensures you have sufficient funds to make large purchases and

4. Ensures you have funds for all emergencies

How to create and use a budget?

In order to create a budget and leverage its utility, do the following:

• List your income and expenses
• Use the right budgeting platform or app/application to align with your expenses and budgeting  purpose
• Identify financial goals and priorities
• Plan higher-savings goals

What are the strategies and methods for budgeting? 50 / 30 / 20 budget

This is the most effective and popular method to plan a budget. This is ideal for people making the first attempt at budgeting, students as well as young

This system became popular after Senator Elizabeth Warren used this approach to break the budget into 50 parts- Necessity, 20 parts -Savings and debt payment, and 30 parts – expenditure and wants. This type of strategy will require discipline and organized payment habits. This type of budget is ideal for people who know how to manage budgets.

1. Zero budgeting

The focus of this strategy is to ensure that every dollar has a budget at the start of the month which is at zero and by the end of the month every fund is allocated and any leftover will be moved to savings. However, this budget is very sluggish and it takes a lot of time in comparison to other budget strategies. Secondly, every month’s expenses will have to be a free plan to ensure the budgets are matched.

2. Envelope budgeting

This type of budget is ideal for families or somebody who has an issue with practicing budgeting or with people who use a lot of cash transactions.

This method is also called the visual way of budgeting. Money is placed in envelopes labeled under the different categories of necessity like savings and expenses and more. When you wish to make a purchase the appropriate envelope is used to match your budget. While this is an old approach to budgeting it is also an easy way in recent times to learn the management of funds.

3. Value-based budget

This type of budget is for those who have a lot of experience in handling budgets and those with higher income. The purpose is to spend money on what brings happiness. This is usually a method to track every dollar in terms of the feeling that spending the money brings and not about minimizing. This is a method that is not sustainable in the long run if the earning income is not high.

4. Pay-yourself-first

This is ideal for people who are beginning to explore the method of budgeting or for those who have a final savings goal and for those preparing for retirement. In this method, the focus of the budget is to pay self first as a form of saving and keep the rest for spending. By this method, you make sure that the money is saved by automatically keeping away certain funds and ensuring that there is a limited fund for expenditure.

The above strategies are time tested and proven financial methods to understand money and how to manage it.

Conclusion

The opportunity to manage financial funds through planning is the primary advantage of budgets. They help us to gain financial freedom to achieve personal goals!

If you are looking for professional help in customizing or tailoring a budget that suits your income and savings, reach out to our financial professionals who offer their years of experience in managing spending, growing your savings, encouraging your financial health, and driving you towards greater income.