What is a Budget?
Are you searching for the best way to build a budget? Simply put, a budget is just a financial planning tool that allows you to review and track your monthly income and expenses over a set period of time. A well-planned budget can help you take a closer look at your current spending habits and make adjustments as needed.
There are many different ways to build a spending plan, and a budget is just a tool that can be used to reach some of your financial goals!
Why Do I Need to Build a Budget?
While a budget may not be necessary, it can be a helpful tool to utilize if you are struggling financially or if you simply want to become more financially responsible. Many people did not grow up learning how to budget or manage their finances, but it is never too late to start! Whether you are young or old, a budget can provide you with a sense of direction, structure, and stability that you may not have had before.
If you cannot create an emergency fund, or you can’t seem to manage your spending habits on your own, it may be time to sit down and create an effective, realistic, and structured budget.
How Can I Learn the Best Way to Build a Budget?
There are a few different types of budgeting methods, and it is important to explore all of your available options before you decide to implement a new budget plan into your life. Understanding how to budget effectively will give you an opportunity to improve your financial situation and plan for the future. Take a closer look at some of the most common (and effective) budget planning tools:
- The 50/30/20 Rule: You’ve probably heard of this budgeting plan before. Many financial experts recommend this strategy because it is based on percentages! For example, 50% of your income will go towards your needs. This includes rent, groceries, a title loan payment, or utilities. Next, 30% of your income goes towards wants. This could be a Netflix subscription, new clothes, or going out to restaurants. Finally, 20% of your income will go towards savings. That means you will specifically allocate 20% of your monthly gross income to building a savings account. While this can be an effective way to budget and manage your money, it does not account for any debt obligations that you may need to pay off. So, if you are in a considerable amount of debt, this may not be the right budgeting option for you.
- The Zero-Based Budget: Although the name may sound confusing, you aren’t ending up with zero dollars in your bank account. Instead, a zero-based budget is simply a plan to put all of your money towards a specific goal- whether your goal is paying off debt, saving, etc., you will utilize this method to control your spending and allocate every single dollar towards a specific purpose. To start this budgeting plan, you must sketch out an estimate of your monthly gross income, current bills, and current expenses. After that, make a spreadsheet and determine how much money should be spent each month, and if it is not spent toward a specific purpose, it should go into your savings account.
- Envelope Budgeting: Although this method may seem a little bit archaic, it is a tried-and-true budgeting method! With an envelope budgeting strategy, you will take out each paycheck in cash and separate the money into specific categories in labeled envelopes. There should be an envelope for groceries, rent, utilities, and a special envelope that is dedicated to your savings account. Additionally, you can put some of the leftover money into an envelope for wants, which include things like entertainment and date nights!
Generally, the best way to build a budget is to review the budgeting tools that are available to you and choose an option that works for your personal financial situation!
What Should I Do if I Am Struggling Financially?
If you are unable to create a budget on your own, you may want to consider reaching out to a financial expert and discussing your available options. They may be able to come up with a structured debt repayment plan if you need one. That could potentially include applying for a debt consolidation loan, such as a title loan on a financed car or a personal loan. Every person has a unique financial situation, so generic budgeting plans may not suit your goals or needs.