Have you wanted to buy something you can’t afford? Maybe you even tried asking your parents, but they just won’t let you! Why not save parts of your allowance to save for the things you want to buy? Well, this article will tell you how to save for the stuff that you want.
To get that one thing you’ve been dreaming of but can’t afford, you have to learn how to budget. You might be wondering, what is budget? Well, a budget is an estimation of the costs and revenue over a specific period. Creating a budget can help ensure that there is enough money for the stuff you want and need.
The budgeting meaning or the definition of budgeting is creating a financial plan wherein you will have to allocate where to put your money. Through budgeting, your savings can be increased, or it can help you get the gadget you’ve been begging for from your parents!
How will you save your money?
You might be wondering how to budget? Well, there are five common types of budgeting methods: (1) traditional budgeting, (2) the 50/30/20 rule, (3) the envelope system, (4) savings first, and (5) the sub-savings account method. If you want to know which method is perfect for you, keep on reading!
Traditional budgeting
If you’re earning more than you’re spending, you can use this method. It’s pretty straightforward, wherein you list your income and your expenses. Afterward, you find the difference.
After doing so, you list down different categories. Set a budget for the amount you want to spend in each category, such as your food, electricity, education, and the like.
For example, if you have 1,000 pesos, you can allocate your 1,000 into different categories: food, actual savings, saving for the gadget you want, and school necessities. You can put 500 pesos for your food, 200 for the device you wish for, 200 for your school necessities, and 100 for your actual savings.
50/30/20 Rule
In the 50/30/20 rule, you break down your expenses into three categories: needs, wants, and savings. Fifty percent of your income is categorized into your needs, 30 percent to your wants, and 20 percent to your savings.
For example, you have 1,000 pesos. 50%, which is 500 pesos, will go to your necessities, such as your food and school necessities. 30%, which is 300 pesos, will go to your wants, such as the gadget you’ve been saving for. The remaining 100 pesos will be for your actual savings towards your future.
Contrary to the traditional budgeting method, you only have three categories to worry about instead of a dozen. So if you are turned off by the time and effort needed to do the traditional budgeting methods, then give this one a try.
However, spending can be an issue due to the small number of categories. To minimize this issue, make your allocated money for your expenses flexible to adjust the costs.
The Envelope System
In this system, you use your actual cash as your spending money.
The envelope system is pretty straightforward, wherein you put your money in separate categories. The envelopes are then labeled to match your categories. It’s a way to force yourself to accurately budget your expenses every month.
For example, your allowance costs 2,000 pesos per week. Then you budget 1,000 pesos for your food, 500 pesos for your savings, and 500 for school materials. When you receive your allowance, put the different amounts in their designated envelopes. Every time you need to buy your food, the money must only come from the food envelope. You must be disciplined enough not to open the others.
Constantly identify all your weekly or monthly categories and make an envelope for each of them. Use different colors to avoid any confusion and label everything.
Although, once your cash is all used up, you can’t get more. This method requires you only to use your money on hand. However, it’s ok to use one debit card for emergencies. Just make sure that you’re using it for an actual emergency, not for the upcoming Shopee sale.
So, what can go wrong?
You can either misplace your cash or be tempted to use it. Here are some quick fixes if you think you’re not disciplined enough to follow the envelope system religiously. You can hide your saved up money in zip-top pouches, hidden cloth pockets that are sewn into clothing, between the insole and bottom of a shoe, and messenger bags.
Savings First
This method primarily focuses on savings. In this method, you are supposed to save your money first, even if you have to compromise your supposed expense. Instead of using the traditional income – expenses = savings formula, this uses income – savings = expenses.
In this method, you set aside your savings then the remaining money is for you to spend. For example, if you’re given 2,000 pesos, you’ll save 1,500 pesos, and the remaining 500 pesos are for you to use. This method is the best fit for someone who struggles to save.
Simply put, a specific amount of money is set aside every time you receive your allowance. Through this method, you can prioritize your savings and make do with what’s left.
Sub-Savings Account Method
You open multiple savings accounts and put a specific purpose for each saving account. For example, you will use separate bank accounts for your daily expenses, actual savings, and the stuff you want to buy in the future.
You can also use different types of accounts for each. For example, in your savings account, you can use a checkbook to make it more difficult for you to use your funds. As for your expenses, you can use a digital bank account to make it more accessible for you.
Tips for Sticking to Your Budget
Different types of budgets methods exist to help control your spending, especially because maintaining a budget is challenging. Here are specific steps to make it easier for you to follow your budget plan.
- Before you start doing your preferred budgeting method, make sure to review your income and expenses. Verify that your expected costs are accurate.
- Despite your best efforts to adhere to any budgeting method and still falling short on your money, you can review your expenses. Try to refrain from spending items that aren’t your necessities. If not, try to lessen the cost. Trade your takeout to home-cooked meals that can be repeated.
- If you are going over your budget, freeze your expenses. You can either completely stop spending or keep spending to a minimum.
In budgeting methods, it is essential to note that one does not fit all. Please take note that you should find what works for you and do it. We hope that this article clarified the budgeting meaning or the definition of budgeting, what is budget, and how to budget.
Picking the Right Method
Even if you pick the budgeting method that works the best for you, it takes time to get used to it, especially if you’ve never budgeted before. However, adhering to budget methods is similar to building a habit. As you do it more often, the easier it becomes to stick to it.
Your reasons why you want to budget should be clear to you. List down your goals and your whys, then constantly go back to them when it’s challenging to stick to your budgeting method. By doing this, you can regain your motivation to keep on improving your budgeting skills.
Additionally, don’t be afraid to revise your budgeting methods as needed. You can make adjustments or tailor them to your needs. This will make it more effective for you. If you discover that a budget method is not working for you, you can always change it as you see fit.
Try and try until you succeed!
Of course, you don’t have to adhere to the budgeting methods above strictly. Sometimes, you have to learn to treat yourself! Congratulate yourself for being disciplined enough and for following your road plan to financial success.
Budgeting methods that work for you will vary, especially since everyone has different sources of income and various expenses. Use the knowledge from this article as a stepping stone for you to achieve your financial goals.
Pick from the budgeting methods from above and try one for yourself. From there, you can determine which works the best for you. You can measure success by your level of contentment and the amount of money saved.