A Closer Look at Three Budgeting Methods
In a previous post, we gave you an overview of our top budgeting tips, and briefly touched on how important it is to find a budgeting method that works for you. This time around, we’ll be delving into a few different methods, to give you a better understanding of how you can put the theory of budgeting into practise. As we mentioned last time, there’s no one-size-fits-all approach to budgeting- it’s all about what works best for you. If you try out one of the methods below and find that it doesn’t work for you, then no sweat- just try another until you hit that sweet spot.
The 50/30/20 Approach
Let’s start out with a method that’s particularly easy to get your head around- and one that will help you to save a lot of money fast. The 50/30/20 approach essentially involves you dividing your money up into three different lumps. The first, which makes up 50% of your income, is to be used on essentials like your rent, bills, food, and so on. That way, you can ensure that you’ve got all the important things covered before you start to look at other things. The second amount, 30%, is for you to use as you please- you can spend it on things that you want, rather than what you strictly need. Whether it’s your gym membership, nights out, or just the occasional treat for yourself, it’s up to you- just make sure that you keep within that 30% figure. That’s 80% of your income accounted for, and the final 20% is for you to put away into a savings account. As you can see, the 50/30/20 method leaves you plenty to cover the cost of living, but also helps you to put away a sizeable chunk of your income each month. If you make £1300 a month after tax, then using this approach will help you save over £3000 a year- making it perfect for those saving up for a mortgage deposit.
The Jam Jar Method
Taking things old- school, this is a budgeting method that your grandparents might have used- but it can still be just as useful in the modern era. Essentially, this involves splitting your income up even more than the 50/30/20 method. Instead, each major expense gets its own jam jar (or envelope, or bank account, or even a row in a spreadsheet- whatever works for you). You should then divide up your money into these various containers, and stay strictly within the budget that you have set yourself. That means no dipping into one jar to cover the cost of a night out- make sure all the money goes where it’s supposed to. If you can keep up this self-discipline, though, the results speak for themselves.
The Zero Method
The final budgeting method on our list might seem a little contradictory at first glance. That’s because it will leave you with an empty balance at the end of each month. How can that help you save money. Well, it all comes down to the same principle as every budgeting approach we’ve mentioned- keeping track of just where your money is going. The aim of the zero method is to ensure your income and outgoings each month match up. So, using that £1300 example we mentioned earlier, you should aim to spend exactly £1300 each month. Of course, this can include savings, but you should aim to include that in your monthly budget so you don’t feel like you’ve got some leeway to spend more if you like. At the start of each month, sit down and list absolutely everything that you’re going to spend money on that month. It can take some time to get this method down, as you may be a little over or under for the first few months. Once you get into the swing of things, though, the zero method is a great way to curb your overspending habits- so if you tend to splash your cash too freely, this is a good way to avoid that issue in the future.
