Budgeting is one of the most important things you can do to take control of your finances. It sets the foundation to achieve your goals, will help you visualise where you are spending your money and what areas you can make adjustments to.
So, let's talk about budgeting techniques. The first thing to remember is that there is no one-size-fits-all approach when it comes to budgeting. Everyone's financial situation is unique, so it's important to find a budgeting technique that works for you.
1. 50/30/20 rule
This rule states that 50% of your income should be spent on necessities (rent, utilities, food, etc.), 30% should be spent on wants (shopping, entertainment, etc.), and 20% should be saved or invested. This is a great starting point for those who are new to budgeting, but remember that everyone's situation is different, so you may need to adjust the percentages to fit your specific needs.
2. Cash-only budget
Can be harder to do in NZ, where some shops are going cashless. This involves only using cash for all of your purchases. You would take out a certain amount of cash for each category (groceries, entertainment, etc.) and once the cash is gone, you can't spend any more in that category for the month. This technique can be especially helpful for those who find it difficult to stick to a budget because it makes it physically impossible to overspend, however you need some self control not to use cash from the wrong category.
3. Budgeting apps
If you prefer to budget digitally, there are a number of apps available that can help you keep track of your spending. Some popular options include PocketSmith, Mybudgetpal and YNAB (You Need A Budget). These apps connect to your bank accounts and credit cards and track your spending automatically. They also provide helpful insights into where you're overspending and where you can cut back.
4. Zero-based budget
This involves creating a budget where your income minus your expenses equals zero. This means that every dollar you earn has a specific job, whether it's to pay bills, save for a goal, or buy groceries. This technique helps you prioritise your spending and ensures that you're not living beyond your means.
5. Value-based budget
This technique involves prioritising spending based on your values. For example, if your values include healthy living and travel, you would allocate more of your budget towards gym memberships and travel expenses. This technique helps you make spending decisions that align with your values, which can make it easier to stick to your budget.
No matter which budgeting technique you choose, there are a few tips that can help make the process easier. First, be realistic. Don't set a budget that's impossible to stick to. Second, track your spending. Keeping track of what you're spending your money on will help you identify areas where you can cut back. Third, be flexible. Life happens, and sometimes you need to adjust your budget to accommodate unexpected expenses. Finally, celebrate your successes. When you stick to your budget, take the time to celebrate and reward yourself so you are more likely to continue with it.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice.
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