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Budgeting - many different methods!

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@olebulls
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Personal finance can be somewhat overwhelming if you have never touched the topic in your life. Or you probably have but have not given it that many thoughts because almost everything is confusing in the start. Personal finance is not a common topic overall, especially budgeting. The latter is not that popular as well. However, it is in the end our own responsibility to take care of our own personal finance. Today I will write some few sentences about budgeting which I believe is something that can be in use for everyone. If you’re a pro in budgeting, you will probably not learn something new here, then you have probably touched every topic I will mention in this article. This could be a good possibility to refresh your knowledge though. Anyways, this is probably most valuable for those that is not that familiar with personal finance and how to budget your own economy.

Budgeting is the foundation of your personal finances; it all comes down to how you allocate your hard-earned money in an efficient and sufficient way. Most likely you will get a salary each month and it boils down to how you spend them or allocate them – where do you put them so to speak? And remember, it is not that you need to allocate your spending and savings in perfection, it is all about how you review and implement them. If you stay committed with your budget over time you will see that you will become better at it and in the end, it is easy to budget your money!

There is no definitive answer on how to budget, it is more of a what suits you best in terms of budgeting. There are many popular budgeting methods or models out there, you just need to figure out what suits you best. For instance, one popular one, is the 50/30/20 model and is most likely the one you pick if you pursue financial freedom before you retire in your 60s. You basically save 50% of your salary, 30% is fixed costs like house mortgage, electricity, car loan and phone bills. 20% is you spending beyond your fixed costs. The latter is money you will use when you go to the cinema, theater, café, travels and the like. This budgeting model is very popular, but it is probably not the best for people that has a lot of debt. The latter model will not suit you and you will need to look for another model and adjust it to your total debt, accordingly. You figure the numbers. I bet.

Another method that has gotten my attention is the zero-based budget and is most likely the budget that everyone uses but I do not think they are aware of it. You basically take your salary and allocate it to budget categories until you have $0 dollar left. Sounds boring right? The premise of this budgeting is that you need to find a job for every dollar that you earn. So, if you have 40% left of your salary by the end of your budgeting categories you will need to find a job for them. Then it could be a good idea to put the rest in savings or paying down your debt (if you have). No matter what, you need to find a job for every single penny that you earn. You could of course take those 40% and spend it all on travel if that is what you love in your life.

Robert Kiyosaki (the man behind Rich dad, poor dad) or the FIRE (Financial independence, Retire Early) movement have a great budgeting model. They always pay themselves first, no matter what. It is probably what the rich do as well. The first company or bill they want to pay is the one that has its own name on it. It is a reverse budget style. You figure out how much you want to pay to yourself when you get your paycheck. After you have paid your biggest bill, which is yourself, you can do whatever you like with the rest of your money, as long as you get your outstanding bills paid.

The last one I want to mention is the “box budget”. I got the inspiration from a TV show here in Norway which is called “The Luxury trap”. People that are joining this TV show have no clue about personal finance and do not know how to write down a budget. Because of the latter they have mountains of debt that they need to pay down, and that they can’t do by themselves. Then, these budgeting experts from the TV show comes into the picture and figure out a plan for them. And one strategy is this box budget. Using this budget, you have a box for each spending category. In each box is the money available to spend for this month. When there is no more money in one of the boxes, you are done spending in that category this month.

There are many budgeting apps out there if you do a quick search in “Play store” or “apple store”. However, I suggest you use the old traditionally pen and paper and write down your budget and then put it in your bedside tables. If you can’t handle a pen, then I suggest you use Excel on your computer. The latter will give you many functions that could make your budgeting even more fun.

That's it for today, till next time!

Cheers -Olebulls