Common budgeting methods to implement into your personal finances.

Budgeting is a common term that is used when talking about personal finances. Budgeting is the process of deciding how to use your income. It’s a way to balance your income, expenses, and financial goals for a specific length of time. The major benefit of budgeting is creating financial stability to help you get ahead of debt and plan for the future. However, there are many people who shy away from budgeting, and some of those reasons are listed below:

- Lack of awareness – some people may not fully understand the importance of budgeting or understand how to create and maintain a budget. 
- Fear of restrictions – some may fear that budgeting will restrict or limit their spending or limit their ability to have fun. They view budgeting as a restrictive practice, rather than a tool that will allow them to have control of their finances and allows them to include fun in their budget. 
- Lifestyle inflation – lifestyle inflation occurs when people increase their spending as their income rises, leading to a higher cycle of expenses and reduced saving. People may resist budgeting because they prefer to maintain or improve their standard of living.
- Inconsistent income – people with irregular income may find budgeting a bit more challenging due to income fluctuations, but it is possible to create a budget that works for this situation. 
- Financial denial – some people may not want to face their financial situation, unable to deal with the stress and anxiety it can bring.

To overcome your avoidance to budgeting, there are several different budgeting methods that can easily be adopted. Every financial situation is different and part of being successful with budgeting is finding what method works for you. Listed below are a few of the more common budgeting methods to take into consideration.

1. Traditional budgeting – This method involved creating a detailed budget by listing your income and expenses. You allocate specific amounts to different expense categories such a housing, insurance, transportation, groceries, entertainment, etc. Throughout the month you then track your expenses to ensure they align with the budgeted amount. 
2. Zero-based budgeting – With zero-based budgeting, you assign every dollar of your income to a specific purpose, so that ever dollar is either allocated to expenses, savings, investments, or debt repayment. It encourages you to give every dollar a job, ensuring that no money goes unaccounted for. 
3. Envelope budgeting – Envelope budgeting (also referred to as cash stuffing) involves allocating cash into different envelopes for different spending categories that do not come out of your bank account via pre-authorized debit. These categories may consist of groceries, entertainment, dining out, entertainment, etc. Once the envelope is empty, that means you have no more to spend in that category and have to wait until the next time you put cash into that envelope. There is no borrowing from other envelopes. This is a way to control overspending and easily track your spending.
4. Pay yourself first – When paying yourself first, you set aside a portion of your income for savings and investments before allocating income to other expenses. This method ensures that savings is a priority and helps with long-term savings goals. 
5. Automated budgeting – Use budgeting apps or online tools to automate your budgeting process. These tools can track your spending, categorize expenses, and provide insights into your financial habits. Most banking apps provide insights to your spending, which can help you track and understand your finances better.
6. 50/30/20 Budgeting – This method involves allocating 50% of your income to needs (housing, utilities, groceries), 30% to wants (dining out, entertainment, travel), and 20% to savings and debt repayment. It is a budgeting method that provides a simple but loose guideline for balancing spending and savings while ensuring that the essential expenses are covered. 
7. 80/20 Budgeting – This simple budgeting method suggests you allocate 80% of your income to expenses and using the remaining 20% for savings, and debt repayment. It provides an easy guideline for budgeting and prioritizing savings without getting too detailed with the expense categories.

 
Finding the budgeting method that works for your financial situation is the key to successfully budgeting and sticking with it. It may take some trial and error before deciding what budgeting method works best for you. When considering what method works best for you, it’s important to consider your financial goals, lifestyle, and preferences. 

If paying your debt is making it difficult to successfully budget to cover your expenses, there are options.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.