Methods of budgeting

On #LearnSomethingNew we’ve covered the benefits of budgeting, saving for retirement and the importance of teaching children to save. We’ve discussed some tips for budgeting and challenged you to test your knowledge – and now we’re going to look at some of the different budgeting methods.

Of course, these are lots of ways to budget. You can do your own research, experiment with what suits your needs and goals, and get ideas from friends and family who are financially savvy.

Subtraction budgeting

Subtraction budgeting is a type of budgeting where you work out how much of a surplus (spare money) you have by subtracting your total expenses, and the amount you want to save, from your net income. If there isn’t any spare money left over, or if your expenses are higher than your income, you should try to find ways to spend less.

Envelope budgeting

If you struggle with overspending on credit, this might be an option for you. This method involves setting spending limits for different categories of expenses (e.g. groceries, clothing, eating out) and putting that amount of cash into that category’s envelope. When an envelope is empty, you can’t spend any more in that category until the next month.

Proportional budgeting

With this method you divide your expenses into needs, wants and savings and then assign a percentage of your net income to each category. The best-known breakdown is 50/30/20 – 50% needs, 30% wants and 20% savings – but this is only a guide and you need to make the proportions work for you and your situation.

When it comes to budgeting, choose a method that makes the most sense for the financial goals you want to achieve, both long- and short-term. Remember to tweak the methods where necessary to suit your financial needs.

Rather than making your life more boring or unpleasant, a consistent budget will give you less to stress about!

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