A wide range of products, unprecedented consumer convenience and human nature to want what is not possessed is creating a national crisis. Americans are accumulating debt at a faster rate than the economy is growing! Total consumer credit rose 5.1 percent in Q1 2018. Auto loans and leases rose 3.1 percent while student loans increased 5.4 percent.
What does all this mean? According to recent surveys and studies, 80 percent of all Americans have debt, a number that isn’t strictly held up by mortgages, either. With such rampant debt across the U.S., practicing a well-planned budget could make all the difference.
Let’s discuss different budgeting strategies so you can decide which is right for you and your business.
If you want to plan how every dollar of your income is spent, a zero-sum budget is the only budget for you. Instead of setting spending limits for the month and trying to stay within them, a zero-sum budget plans expenses down to the dollar ahead of time. As long as your income is stable month to month, you can be intentional about how much you’ll spend on groceries, transportation, restaurant, savings and everything else a part of your monthly responsibilities and goals.
For debtors who want to stay on top of their spending without meticulously tracking expenses, following a percentage-based budget offers a simplistic solution. Many personal finance experts advise the 50/30/20 budget, which distributes half of your income to essentials, 30 percent to your wants, and 20 percent to debt and savings.
But you can adjust the percentages to your financial situation. For example, a modified strategy is the 80/20 rule, which divides 20 percent of income to savings and 80 percent to everything else. Of course, this leaves the question of where your remaining money goes relatively abstract, but it’s a baseline rule that’ll ensure you stay financially responsible.
A final note, do more with your savings than keep it in a savings account. After you’ve met your three-to-six-month emergency fund target, most of your money should be going to retirement funds to maximize your long-term yield. You can make these types of budgets completely painless and maintenance-free by setting up automatic withdrawals.
Pay Yourself First
A key obstacle in sticking to a budget for many people is the helpless feeling that stems from watching a paycheck get immediately redistributed out to pay for various life costs. Even if the disbursement is contributing to our progress, the loss of control can affect motivation and lead to a spending relapse. By paying yourself first, you’re reversing the typical emotional cycle of budgeting and getting the reward before all else. Reverse budgeting will help you make strides toward your short- and long-term savings goals — including retirement — while still keeping pace with your bills.
Envelope System, aka Cash-Only Budget
Want to limit your spending but don’t trust yourself to stay within the confines of your budget? The envelope system could be the straightforward plan you’ve needed all along. Just as you would with a notebook or budget app, create your expense categories and set monthly spending limits. But instead of tracking your expenses, you’ll fill an envelope with money for each budget category. If you’re allocating $100 for meal expenses for the entire month, once that $100 is gone, you have to wait until next month.
The envelope system provides a sense of control and protects against overspending — two significant factors in acquiring a newfound sense of financial wellness. A cash-only diet will also sound familiar if you’ve undergone debt relief in the past, such as debt settlement with reputable companies like Freedom Debt Relief. If your expenses fluctuate a lot and you can’t commit to fixed spending totals, feel free to lose the envelopes and keep the cash.
Of course, if these strategies aren’t for you, there’s always the tried-and-true line-item budget. You track every monthly expense and categorize your transactions into different categories, being as specific or broad as you desire. After a few months of tracking your purchases, you should have an accurate baseline of where your money is going. From here, you can adjust each category to free up extra funds for savings contributions and debt repayments.
Whether one of these budget models applies to your financial situation or not, the only essential thing about a budget is seizing control of your spending—decide on a budget today to take hold of yours.