Top 5 Unbeatable Personal Financing Tips
Budgeting is one of the most ‘should be known’ financial topics. It is a process of planning the budget for a decided period. It is a way to fulfill all your needs without spending extravagantly. A budget is the approximate amount of money you plan to spend. This forecasting and planning can help you determine your priorities if you find yourself short of cash. Moreover, if you save money with this, you may achieve your financial goals sooner as buying your first vehicle or house, or you may go on a vacation, start a new business, invest, etc.
To follow the best budgeting method is more about determining which works well for you. One may work for some while not for others. All you need is to at least start doing it with the one that impresses you the most.
1. Allocating Wisely: ‘50/30/20’ Method
The formula is basically about the allocation of your income (post income tax) into a ratio of 50,30,20. This means that a fat 50% of your income will be going with your needs, which makes sense. These needs of yours can be anything that comes under your ‘necessities’ like water tax, house tax, EMIs, repairs, renovation, medications, therapy, food, etc. (No, this absolutely will not include that lustrous pair of heels that are on discount this weekend.)
Then, the 30% goes to the wants, which include anything that is not necessary but you want anyways. This may include anything from that pair of heels, of course to buying yourself expensive skin care products.
Now, that 20% will automatically go to your savings, and by that, it means that not even a single penny will be spent by you on your needs and wants. This can include your savings for your first house or vehicle or your higher education etc.
Also, if you have any debt, it’s up to you whether you want to pay out from your needs or savings. Besides, you can always make amends as per your needs.
2. Categorizing Each Penny: ‘Zero-based’ Method
As the name suggests, the zero-based method includes an assortment of the whole income. That means if you want to pay off a debt, then you don’t need to take money out of your ‘needs’ or ‘savings’ categories, but you will term that transaction as ‘debt’ so that you’ll have a track of every penny. Moreover, it doesn’t mean you’re just transacting your money anywhere just for the sake of following it, rather you obviously can have a savings category as well, right? However, in a way you’re paying the ‘savings’ to your savings account, and that’s why this method is also referred to as ‘assign a task to each dollar’.
This method makes it easier for keeping an accurate track of all the incoming and outgoing money in one place.
3. Self-love: ‘Pay Yourself First’ Method
Remember when you used to do the Percentage chapter in your Mathematics class? Yes, so just like you used to subtract the savings and the to-be-paid debt from the income to find out the expenditure, exactly that’s how this method works. As the name indicates, you pay your necessities first, which means you take out your savings overall and your particular savings just for debts. Further from there, whatever is left, is your expenditure.
This formula saves you from the anxiety that you get after doing the reverse, i.e., saving what is left! Besides, this helps you prioritize the actual self-love which is not to spend lavishly but wisely thinking about how it may affect other conditions of your life as well.
4. Label It: ‘Envelope’ Method
The envelope method makes you create envelopes and label them precisely on the cause you’re going to spend it on. It is also known as the ‘Cash only method’ for making envelopes, you just need to use cash. In a way, it is an improvised version of the zero-based method. It is one of the simplest methods, for as soon as the envelope gets emptied, you will know you’ve spent in that category. Along with it, all your savings and to-be-paid debt money will be safe.
This formula helps you build a sense of self-control and acceptance for people who spend a bit extravagantly and fail to keep track of their spending.
5. Prioritize Accordingly: Priority-based Method:
This method is for people who know the basics of budgeting pretty well and have been practicing budgeting methods for quite some time now. The priority-based method is about how you are prioritizing your necessities, temptations, compulsions, etc. It, however, is used by either large businesses or the government, but it can also be used for personal finance. What you need to do here is categorize your budget followed by prioritizing the stuff as the most or the least important.
It helps you not to be compelled by anything and to make decisions wisely which eventually comes with time.
As we sum up, what you need to remember is the purpose of doing this is to provide you with a better financial perspective which eventually makes it easier for you to handle any debts, while saving for the future and not compromising with any of your needs. Moreover, you can always keep on personalizing these methods according to your needs & convenience. Once you get used to saving a particular ratio of money, you will not even need any method to keep checking up on the budget.
