If you don’t know where to start with your budgeting and how to stay on top of it – don’t worry, you’re not the only one. We have all heard that in order to manage your finances and start saving, we should start a budget – which is completely true. The problem we have all once faced is how to do it.
Therefore, we have created the ultimate guide to find the budgeting method that suits you best.
1. The 50/30/20 Budget
The 50/30/20 budget is one of the methods we have covered in some of our articles already and it is one of the most commonly used budgeting methods out there. And there is one reason for it: it works.
What is the 50/20/30 budget rule?
This rule involves spending 50% of your income on your needs, 20% on your “goals” and 30% on your “wants”. This consists of the following:
- 50% needs: These are your regular commitments like rent or your mortgage, grocery costs, transportation and utilities.
- 20% savings: These are the funds that you should be allocated towards your savings and financial goals.
- 30% wants: These are nice-to-haves and include some entertainment, eating out or staycations.
What are the advantages of this?
This budgeting method is great because it allows you to create money buckets and in an easy way divide the money and monitor where all your money is going. This method is also great to help you stay on top of your spendings and ensure you are working towards your financial goals every month and that all your payment obligations – or your “needs” – are taken care of.
The zero-based budget involves making sure that every dirham has a dedicated role and there is no money leftover. Basically, everything that comes into your account, matches everything that goes out from your account.
Who is this for?
This is a perfect method to keep yourself true to your goals with no room for adjustments. If you’re looking for a way to track all your money and make sure it’s being put to the best use possible, the zero-based budgeting method is a great way to do this.
The 60% Solution
This method might be similar to the 50/20/30 and it involves allocating 60% of your income “committed expenses” which include:
- Basic food and clothing needs
- Essential household expenses
- Insurance premiums
- All of your bills, including non-essentials like Netflix
The remaining 40% is then divided up into four chunks of 10% as follows:
- Retirement savings
- Long-term savings
- Short-term savings
- Fun money: Spend this however you want – but don’t exceed 10%!
Who is this for?
This is perfect for people who enjoy automating their life, and that includes a lot of their financial management.
This method is perfect for those who base their spendings on their values rather than specific budget categories. In practice, you make your financial decisions based on what you value more and allocate a budget based on your values. Be it travel or fitness, you will allocate more of your money there, if it’s socialising and dining out, this is where you’d allocate more money. Proportional Budgets or 80/20 With the 80/20 budget, you spend 80% of your income and put 20% of it towards your savings. This budgeting method is a perfect solution for people who like to be a bit flexible with their money and time. This method gives them the flexibility to figure out how much to put away, and how much to spend, in simple terms.
Continuous budgeting is often used in business settings and it involves preparing budgets for future periods and revising them regularly to optimise or improve spendings.
The envelope budgeting method involves allocating a set amount of cash to each budget category for the month. And once the cash is gone – it’s gone. This method might have worked well pre-pandemic but nowadays, with card payments everywhere and a lot of the places not accepting cash anymore, this could be a bit of an issue.
Who is this for?
This method is great for those who like to flash their plastic left right and centre and struggle with keeping themselves accountable when it comes to spending money. You can also have as many envelopes as you want, depending on how detailed you wish to be with your budget.
Don’t forget there is also traditional budgeting which is a method of calculating all your income and all your expenses and spending the rest on whatever you want and need. It’s especially good if you know you’re not doing enough to reach your financial goals – but aren’t sure where to start with reducing your spending.
Which of these methods sounds best to you?
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