Everyone wants to have money, but no one wants to budget. Without an organized budget, you will not be successful in acquiring wealth. No matter how much money you earn, you will not acquire wealth without a budget. A budget is a plan in writing that tells your money what to do. Just like in life, without good leadership, the people will parish. If you don’t have a quality plan to tell each dollar where to go, you will have a hard time being successful. Check out these strategies to be a successful budgeter.
Types of budgets
Zero Based Budget
In a zero-based budget, every dollar of your income is assigned to a specific expense, leaving you with a balance of $0. This would include a list of all expenses as well as multiple savings categories. Let’s say you have $700 after your expenses are paid. You may put $400 in a “future car” fund, then $300 in a “Home Maintenance” fund. After all expenses are paid and the rest of your money is moved to savings accounts, you will be left with $0 for this month, which is how a zero-based budget works.
50/20/30 Budget
This budget consists of needs, savings, and wants. The 50 represents 50% of your net income going to needs. Needs would consist of mortgage, groceries, electricity, etc. Then 20% of your net income will go to savings. This can be savings to build up an emergency fund, adding money to a “New Car” fund, or even investing in retirement. Then 30% would be considered wants. This could be buying some new clothes, taking a weekend trip somewhere or even going out on a date. Depending on your financial goals, these percentages can vary. Maybe the 20 and 30 are flipped around if saving for something is more important than wants.
Pay Yourself First
This budgeting method is exactly what it sounds like. When you get your income, pay yourself first meaning you have a specific amount or percentage that you “pay yourself” or save. After you deduct that amount, you pay your bills. Then you can do whatever you want to do with any money that is left over. Although this is less specific, emphasizing savings is a major part in acquiring wealth.
Envelope Budget
The envelope budget is more old school but is still effective. You put specific amounts of money into envelopes. These envelopes would be different budget categories like electric bill, mortgage, extra mortgage payment, car payment, fuel, car insurance, etc. You should already understand how much each is, so you budget money in each envelope for each category. If you have $50 in a “going out to eat” envelope and you used all $50 before the end of the month, then you won’t be going out to eat for the rest of the month. You only spend what is in the envelope on that certain category. There is no buffer or swapping other money into other categories.
Staying Consistent
Consistency is what transforms average into excellent. Staying consistent is hard but necessary to become financially successful. Creating positive habits like paying your bills in full and early each month is a great way to be successful. These habits will compound over time and create bigger gains as you progress in life. Just like how compounding interest works wonders over time, consistently making positive financial habits can lead to a less stressful life that accumulates wealth.
Prioritize
Understanding your money goals is needed for you to prioritize how you budget. You may want to pay extra on debt, so you are debt free. For you to do this, you may need to sacrifice some of your spending money to speed up the process. Having a plan and understanding how to get there will help you prioritize what to do with your money.
Where do I Start?
It may seem overwhelming to all the sudden start tracking your cash flow. Having a budget and tracking your money is a critical point in becoming financially successful. Check out the Wealth Calculators to get a paper budget or an online budget to start taking control of your money. For some people, automating your bills and savings can help you budget. It is important to understand how to manage your money. But at the end of the day, you need to take action. Without action, you haven’t done anything. Whether you automate everything or plug in each number into your spreadsheet, it is important to keep track and understand your cash flow though budgeting.