Several surveys show that one of the most common New Year’s resolutions is saving more money. A key to accomplishing this goal is to set a budget. Since there’s no one-size-fits-all approach, let’s take a look at some of the strategies that could help you meet your goals.
50/30/20 Rule
This popular budgeting method is based on the principle of taking your after-tax income and dividing it into three ratios.
50% – Essential expenses such as housing, utilities, groceries, and transportation
30% – Discretionary spending that covers items like memberships, subscriptions, meals out, and travel
20% – Building up retirement and emergency savings and eliminating debt
While this simple strategy is a good first step, it might not be practical for low-income households or high earners.
Zero-based Budget
A bit more complex, the zero-based budget is for those who want to track every dollar. By establishing expense categories and allocating a certain amount of your income to each one until you hit zero dollars, you can see exactly how much you’re spending and where. Using a spreadsheet to track your progress will give you an idea of where you’re overspending. Since this method requires more of your time, it might not be ideal for those with hectic schedules.
Pay Yourself First
If saving money and building wealth are your financial goals but you struggle to meet them, then this one is for you. Decide the amount that you want to sock away and set up a direct deposit to automate the process. Use the remaining money for your daily wants and needs. As important as saving is, it’s essential that you continue to pay down any debt. If you’re having trouble making ends meet, this might not be the budget for you.
Values-based Spending
While paying off debt and saving for emergencies are essential goals, people’s financial priorities may differ greatly after that. Some dream of a big house or a nice car, but others may prefer to focus less on material objects and more on experiences. This is where a values-based budget comes into play. You might be willing to sacrifice square footage and fancy vehicles in order to travel the world, pursue hobbies, or achieve personal goals.
Stay On Track
Budgets can seem restrictive or overwhelming, so be sure you go into the process with realistic goals. Automating as much as possible can eliminate temptation, allowing you to set it and forget it. Don’t be afraid to give yourself a small reward for meeting goals, you’ve earned it.
