3 Ways To Budget
Budgeting doesn't work for everyone. For a lot of people, budgeting brings up images of spreadsheets, feelings of denial, and connotations of failed discipline. Many people have tried to budget, and just ended up frustrated with themselves, the same way they do with a New Years Resolution that doesn't make it past February 1.
Some people give budgeting a try, but find that it doesn't work for their lifestyle and give it up. Their finances drift along, maybe they get into credit card debt or become house poor (their mortgage takes up too much of their income), but money gets forced down the list of priorities because it is connected with negative emotions, and it's just easier and more fun to think of other things. Taking a cold hard look at their finances can be about as much fun as a root canal from a dentist who forgot their glasses.
I get that. I've never been a traditional "budgeter". Cue the gasps from the audience! I'm sure you're saying, "But Zach, you're a personal finance geek! How on earth can you not just obsess over categories and spending!" I can understand that, due to cruel stereotypes and my amazing collection of plaid pocket protectors.
In this article, I want to quickly break down three systems of budgeting, and hopefully one of them will appeal to you enough that you'll try it out, or continue it if you're already doing it. The first is the type that I do (even though I just said I didn't budget, you can't trust the media!)
The Daily Spending budget: I figure out how much I will spend in regular bills like cell phone, school fees, car payments, rent, and I deduct that from my monthly income. Then I take out how much I want to save each month as well, just like any other cost. That leaves me with how much "spending money" that I have for groceries, eating out, entertainment, clothes, etc. I break that monthly spend into a daily spending amount, which I can spend on whatever I want. I make a game of it, and if I'm under for the day, I get a little jolt of happiness. I also give myself more to spend on the weekends than on week days, because during the week, I'm at work and have less time to entertain myself. For me, it works out that I can safely spend 150 AED each weekday, and 270 AED each weekend day. If I go over from time to time, it's ok, because I know that most of my days I'm under that target. I like this system because it's easy to see if I am doing well that day, and it gives me flexibility in case there are unexpected expenses, I can just cut back the next few days by eating in or reading more or any other High Quality Low Cost Leisure activity. Through this system, I managed to save 60% of my income in the previous 12 months.
The "Traditional" Budget: Break apart your monthly spending into categories. Decide how much you want to spend in each category. Some people like to put cash into envelopes for each category. Then, they know that when they get to the end of the cash in the envelope, they can't spend any more in that category for the rest of the month. I find this works for people who are very organized and know themselves well and have fairly set amounts that they spend each month.
The "Anti-Budget": Figure out how much you want to save each month. Automatically take that out when you get paid and put it in your savings account or investments. Enjoy the rest. I definitely recommend having an Emergency Fund for this one, because if something unexpected happens, you'll need reserves so you don't have to tap into your savings or investments. I can see this system working very well if you don't want to keep track of your spending but still want to save money each month. You'll get used to not having the money that you're saving if you just move it as soon as you get paid to something that you won't spend, like your investments. Some bank accounts and finance apps do this automatically, check and see if yours has this option.
Overall, one of these systems may work for you. Everyone's different though, so if one doesn't work, give another a shot. Having a system in place that works for you is critical if you want to take charge of your finances and not be stressed about money all the time. I wish you much success in your endeavors!
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