Today is the day to talk about the big “B” word… budgeting!
In 2019, I graduated from college with over $100,000 worth of student debt (Yikes!). At the time, I wasn’t making a lot of money and I was overwhelmed figuring out where to start. This is when I came to Narratives Unbound for help. I learned that the most important tool for taking care of your finances (and yourself!) is to create a budget.
There are a few things to consider when choosing a budget. First, a budget is useless if you don’t follow it. Be sure to pick a budget that fits your lifestyle.
Second, budgeting is only a tool that helps you achieve your personal goals. Make sure you have a strong understanding of what you want to do, and where you want your finances to be in 2, 5, or even 10 years.
Lastly, budgeting is as easy or as detailed as you want it to be. Have fun with it!
Style #1: Percentage-Based
First up, is a style called Percentage-Based budgeting. This is when you divvy up your income for different payments, based on percentages.
For example, my very first budget was a 50/30/20 split. I would use 50% of my budget for necessities, like rent and groceries. I would use 30% for my “fun” budget for things like bowling, concerts, camping, and whatever else I wanted to do with friends. I used the remaining 20% for my savings. Some examples also include using a 70/10/10/10 split. It’s really up to you!
The only con that I ran into while using this style of budgeting is that my expenses didn’t always fit in the 50/30/20 buckets. I wasn’t making a lot of money in college, sometimes my necessities would take up to 70% of my income. It became hard to keep up with my budget as my bills and income fluctuated.
Style #2: Hard Copy
The Hard Copy budget is a great tool to help control your spending. Basically, you split your cash up into envelopes based on categories (groceries, clothing, entertainment, etc.). Once the cash in your envelopes is spent, your spending is done. Simple right? This budget is super helpful for breaking spending habits and managing your debt.
Tip: No matter how tempting it is, don’t take money from one envelope (like groceries) to pay for another envelope (like clothing). This defeats the whole purpose and you’ll end up overspending.
Style #3: Automatic Payment
If the envelopes are too tempting to open, try the Automatic Payment budget. This style is very similar. Instead of using envelopes, you set your income to be automatically divided and accounted for through your bank.
Style #4: Comprehensive Budget
The Comprehensive Budget is also known as the Zero Sum budget. The goal is that your income minus your expenditures equals zero by the end of the month. You can repeat expense categories and amounts every month or mix it up.This budget is perfect for my highly organized folks (I’m lookin’ at you Virgos).
With this style of budgeting there are no surprises that you can’t handle because you know exactly where your money is going at all times. Thanks to Excel it’s easy to track your expenses.
Style #5: Value-Based
Ah yes, next up, the young millennial’s dream budget! The Value-Based budget focuses on directing the majority of your spending towards things you actually care about. This style helps cut unnecessary wants out of your budget. It’s a great way to check in with yourself and decipher what you want to prioritize or what you want to let go. However, this budget isn’t very savings-focused.
Style #6: Reverse
And finally, my personal favorite, the Reverse style of budgeting. The Reverse budget is a savings-first approach. For this budget, you divide your money based on what you are saving for or what debt you are trying to pay off first. It’s great for achieving long term goals quickly. However, when you first start this budget (in my experience) you have very little wiggle room for extra spending, at least for the first few months. But! This could help you take an offensive approach to improving your income.
Creating and managing a budget is one of my favorite ways of taking care of myself. Choose a budget that works the best for you. If you’re looking for a more animated way of explaining these budget styles, check out this video. Good luck!