Determining which budgeting method fits your needs best will help you save money
Do you know what separates those who manage money well from those who don't? Just two actions: making a budget and sticking to it.
But given how many opinions are out there about the best way to make a budget, how do you choose the one that best fits your needs?
Below are three common budgeting methods. Compare and contrast them to figure out which is the best fit and will save you the most money.
The basic principle behind this method is simple: the money you take in and the money you spend should balance out to equal zero.
To make a budget using this method:
- Draw a line down the middle of a piece of paper.
- On the left side, write all of your income—your wages from your job, income from any side jobs, child support, etc.
- On the right side, write all of your expenses. Make sure to "pay yourself" on the expenses side by depositing a certain amount into savings.
- If these amounts don't equal zero when you total them, adjust your spending until they do.
Balanced Money Budget
Former law professor and current U.S. Senator Elizabeth Warren introduced this method. The steps are easy to follow:
- Spend 50 percent of your earnings on your needs.
- Spend 30 percent of your earnings on your wants.
- Set aside the remaining last 20 percent of your income for savings or paying debts.
If this one doesn't work for you, there are many similar methods that break down your spending and saving into percentages, such as the 60 Percent Budget and the Three-Step Budget.
This budget is based on the idea that paying with cash rather than with a card will help you save. Research has shown that using cash alone makes people think twice when making purchases, such as a snack at a gas station.
It can be hard to make a budget and even harder to stick to it at first. Whichever method you decide to use, remembering to spend less than you earn can help you take control of your spending and keep money in your pocket (or your bank account).
Source: Lincoln Savings Bank