According to NBC News, 51 percent of millennials say their living expenses cause them major stress. But this financial stress is not isolated to young people. In fact, a recent Forbes article claims that only a third of adults over age 50 are financially literate. So you need to learn about budgeting now, while you have a chance to chart a healthy financial future.
Obviously, setting limits on your spending wins no points toward the rock star image you want to project. But budgeting does win points for your personal security. Part of this security is the nest egg you create for the day you first meet with mortgage brokers. Your future is what matters most, isn't it?
Below are three different ways to budget your money better. Pick the one that sounds like the best fit for you and give it a shot. Of course you have to give yourself time to master the method and get used to your new well-budgeted lifestyle. Soon you will feel much more aware of your spending and less on edge about your future.
The three types of budgeting we cover include:
- Percentage budgeting
- Zero sum budgeting
- Cash diet budgeting
Many people call percentage budgeting the 50-20-30 budget. This is because this method of allocating your money relies on a 50 percent fixed expense allotment, for things like your rent, cell phone bill and student loans. The 20 percent accounts for your savings and investments. The 30 percent is a flexible spending allotment for lifestyle costs, such as food, vacations, pets and entertainment.
Obviously the 30 percent flexible spending is not as flashy as poppin' bottles in the VIP section. But that 30 percent limit keeps you on par to actually save some money and prepare for emergencies or your future - the 20 percent.
Zero Sum Budget
The zero sum budget takes some patience, self-discipline and planning. The planning comes into play because you need a good cushion in a savings account, before risking a zero sum budget lifestyle. But if you have some savings, consider this as one option.
The zero sum budget works to use last month's income toward your present month's expenses. Every dollar has an assigned place. This budget type helps people in these unpredictable financial situations stop living paycheck to paycheck, or avoid getting to that point.
To set up this budget, keep track of your expenses for a few months. Get rid of any unnecessary costs, such as high priced cable channels you never watch. Make a list of all of your monthly expenses, including:
- Cell phone
- Loan payments
Every single dollar you earn from here forward goes into one of your categories. This means you zero-out your paycheck, sending every dollar into a specific place. This makes maintaining a savings category very, very important.
Cash Diet Budget
The cash diet budget is something you should consider doing every once in awhile, sort of like a cleanse. It forces you to see all of your spending habits clearly on a cash diet.
To start this budget, write down all of your monthly expenses and spending. Include every penny you spend in the month, whether by cash, online or through the mail. Also include your savings deposits. Then put your credit and debit cards away for safekeeping. Obviously you still need those card numbers for some online payments or expenses. But do not carry them in your wallet.
Once you track your cash flow, you know precisely how much goes to your daily expenses, groceries, fuel or transportation costs and non-essential items. So now, your daily costs and non-essentials will only be paid for using cash.
As a good example, let's pretend you have $1000 per month after paying your rent, utilities and other bills. This breaks down to $250 per week for your daily costs, food, gas, public transit, coffee on the corner and drinks out with friends. Take out the $250 budget in cash every week, from an ATM or at a bank. Use this cash for all of your weekly costs.
When you need to make an online purchase, buy the item but take the equivalent amount out of your wallet. Place that money aside for the next week's cash diet. When you carry cash forward to the next week, you still only give yourself a total of $250 in cash at that time.