There are many personal budgeting techniques and strategies that you can find online, but not all of them may work for you. People have different priorities and spending habits – some may want to invest more in their savings, while others wish to pay off their debt first. This is why when managing your finances, you should first find the budgeting method that best suits you.
In this article, we’ll list down four simple budgeting techniques and strategies that may help you achieve financial freedom. Read on and find which one would best work with your spending and saving habits. To get you started, you may also check this budgeting guide here.
4 Simple Budgeting Techniques That Help You Save Money
50/20/30 Budgeting aka Balanced Budget
The idea behind 50-20-30 budgeting technique is that you allocate your total income into three priorities:
- 50% must go to your needs. These are the expenses that go to food, rent, utilities, and other non-negotiable expenses that you have to pay to survive.
- 20% goes to savings. This may include your emergency fund. Ideally, you should also include your payments for debts in this 20% allocation.
- 30% goes to your wants. Want to update your wardrobe, or maybe finally go on that trip that you’ve been planning for months? This is where you’ll get the budget for that.
Envelope Budgeting aka Cash-Only Budgeting
Here, you’ll literally put your cash into envelopes that are categorized according to your spending. For example, whenever you have to buy groceries, you’ll have to get the budget from your “Groceries” envelope. You’ll need to plan carefully because ideally, you shouldn’t “borrow” from the envelopes that are set for other expenses such as bills or savings.
The good thing about this method is that since you’re strictly not allowed to get cash from other spending categories, chances are that the envelope allotted for savings would be left untouched. There’s also less risk for you to overspend by using credit and debit cards.
However, the obvious downside is that you’ll have to use actual cash. Many people feel more secure to bring around cards rather than cash, so understandably, this technique is definitely not for everyone.
Pay Yourself First Technique aka Reverse Budgeting
This is a simpler variation of the 50-20-30 Budgeting technique, and one that has a particular focus on savings. The way this works is that every time you receive your income, the first thing you set aside is for savings and debt payments. You’re then free to spend the rest as you see fit.
This technique allows you to plan your spending around your saving goals. However, it’s important that you don’t compromise the necessary expenses such as monthly bills. You’ll have to make sure that whatever amount you “pay yourself” still leaves enough for you to settle your expenses for your needs.
Zero-Based Budget
The idea is to allocate 100% of your income to savings and expenses, so that at the end, what is left is zero.
The Zero-Based Budgeting technique is perfect for those who have a predictable regular income. Note that you have to be as accurate as possible when listing down your expenses because there will be no wiggle room for anything that has not been accounted for. Needless to say, your allocation must already include your budget for savings, debt payments, and emergency fund.
The watch out is that your ending amount must never be negative, because that would mean that you are spending more than your means.
To summarize, below are the personal budgeting techniques that you can do to help you save money:
- 50/20/30 Budgeting aka Balanced Budget
- Envelope Budgeting aka Cash-Only Budgeting
- Pay Yourself First Technique aka Reverse Budgeting
- Zero-Based Budget
There are many other personal budgeting techniques and strategies, but these are the ones that put a highlight on saving money. Assess your spending habits and stick to one technique. Hopefully this will help you on your way to financial freedom.