18 May

Adulting: Choose a Budget

You know you need to choose a budget and you’ve avoided it long enough. In this post, let’s look at a few different budgets to see which one might suit your life. Regardless of how comprehensive a budget might be, if you’re not detail-oriented, you probably won’t stick to it. So choose a budget option that you think will work for you. Also, unless you are a stick-in-the-mud, cutting all the fun out of your budget is a recipe for failure. It’d like planning to eat kale for every meal and expecting to stick to your diet. Not gonna happen.

The first step in creating a budget is to set a goal. What are your financial goals?  Do you have debts to pay off?  Are you saving for something in particular like a trip? Do you simply want the peace of mind that comes with accurately tracked expenses?

Choosing a budget from one of the methods below is a good place to start. You may decide to slightly change it to meet to your individual needs.

  • A Classic Budget
    1. Figure out how much you’re taking in.
    2. Assign limits to your spending categories.
    3. When you hit your limit, you’re done.

Envelope based classic – Withdraw cash and fill envelopes for each spending category at the beginning of each month. You may move money from envelope to envelope to compensate for overspending or saving in any category.

Once you spend all of the money in the envelopes you are done, you cannot go back to the bank.

  • Zero-based Budget

Simply put, income minus expenses = zero

Every dollar has a job. This works well when you know exactly how much money you are earning each month, and you know exactly when it comes in. You account for all of your spending ahead of time in an effort to come to zero each month. Categories for spending include rent, going out, car payment, your savings account, a retirement account, etc. This works really well for detail-oriented people.

  • 50/20/30 Budget

Divide your money for spending or saving into 3 categories.

  • Necessities
  • Long-term savings
  • Lifestyle choices.

No more than 50% goes toward necessities which includes housing, transportation, utilities and groceries.

At least 20% goes toward Financial Priorities, which include retirement contributions, savings contributions and debt payments. Make these payments after Necessities but before any other spending.

No more than 30% goes toward your Lifestyle Choices, which are personal, voluntary and fun choices about spending discretionary income. They often include cable, internet and phone plans, charitable giving, childcare, entertainment, gym fees, hobbies, pets, personal care, restaurants and bars, shopping and other miscellaneous expenses.

Sticking to a budget is possible if you select one that works for YOUR life. If your employment situation changes significantly, it might be a time to re-evaluate the budget you have chosen. If your life changes, i.e. you begin a family, your categories might shift as well. Be flexible but be vigilant. It’s your money, we just want to help you have more of it.

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