Top 5 Personal Budgeting Techniques To Give You Financial Independence

By Soko Directory Team / February 10, 2020 | 12:11 pm




More often than not, we have all fallen victim to short bursts of spend-happy periods where we blow our paycheck all at once.

Though it may feel fun to let your mind take a break and spend as you wish, it isn’t the best thing for your wallet, the morning after. No one enjoys living paycheck to paycheck, and if someone told you there was a way to make your money last for longer, wouldn’t you jump at the chance?

Well, there is and it is a simple word, budgeting…

In a simplified way, budgeting is the act of tracking your finances so you don’t spend too much or too little. Unlike what you might believe, budgeting isn’t all about restricting what you spend money on and cutting out all the fun in your life. It’s really about understanding how much money you have, where it goes and then planning how to allocate those funds best.

The thought of accounting for every bit of money you touch can be intimidating, but let’s be honest; if we could all have an unlimited amount of money, budgeting would probably be much easier for most of us. However, since only a small percentage of the population has that much money, budgeting is pretty much a necessity for everyone since it lays the foundation of every financial plan.

Although most people must have a budgeting system, not all budgeting methods are a cut and dry, one size fits all type of strategy. In reality, nothing could be farther from the truth. When it comes to how to actually make a budget, you have to find the personal budgeting technique that works for YOU!

Below are some of the most popular budgeting methods used…

The 50/30/20 Technique

The 50/30/20 budget is a simplified plan in which you break down your expenses into three categories: needs, wants, and savings.

50 percent of your take-home pay should go towards needs. This means half of your income goes to the things you absolutely have to pay including housing, food, utilities, and transport.

30 percent should be devoted to wants: that is personal expenses like dining out, gym memberships, vacations, and other things that are not a necessity to live.

20 percent should get put into savings because you never know what curve balls life will throw at you. You should make a conscious decision to put 20 percent of your income into a savings account earning you a bit of return but is liquid enough like a money market fund.

Pay yourself first technique

Under this strategy, you simply first put the focus on your savings, and then freely spend the rest. That’s because you put money away at the beginning of the month before you have a chance to spend it on anything.

It requires you to figure out the difference between your income and expenses upfront, but after that, it’s smooth sailing until you need to change it up.

A good rule of thumb to follow is saving at least 5 – 20 percent of your income before expenditure. To make it easier, have an automatic method of deducting the savings before you spend since once you have surplus money, you will always spend it, somehow.

Snowball Budget

This budgeting technique is good for those struggling with debt who want a way to create a payment system. Begin by calculating the overall amount you owe on all your debts. Once you have that figure, decide how much income you’ll use to make monthly payments to chip away at that debt. After your simple budget has been made, begin applying that income toward paying the debt down each month, beginning with the smallest debt to the largest one.

Reverse Budgeting

This budgeting method consists of only one thing: savings goals. To use this technique, instead of setting up categories to analyze spending, create aggressive savings goals. As long as you contribute to the goals you’ve set, the rest is a gray area. This type of budgeting is only focused on one thing, which is hitting savings targets. It is also called a zero-sum technique.

The Envelope System

The envelope system is intrinsically simple. To begin, add up all of your fixed and variable expenses, including rent, utilities, groceries, etc. Subtract this from your income, and put each expense into its own envelope.

Label each envelope with its total cost and name, and when you receive each paycheck, set aside the amount in cash for each envelope.

This is a basic way of making sure you have the assets you need for all your expenses as well as a way to only use cash for the month. The rest is yours to have, whether it be for spending or saving.

If you tend to use M-Pesa payments a lot or swipe your card, this method will help you in not only reducing the transactional costs associated with M-Pesa but also to see physically see how much money you have and how it’s being spent. When the allocated amount for a certain category is gone, you simply stop spending until the next allocation. This method is also called a cash-only method.

 Conclusion:

Remember that you can modify any of these methods to suit your needs. Don’t cubbyhole your finances into something that won’t work. Your budget should be flexible and forgiving.

READ: Here Are the Factors That Influence Your Personal Credit Score

This article has been written by Rose Ella from Vasili Africa





About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

View other posts by Soko Directory Team


More Articles From This Author







Trending Stories










Other Related Articles










SOKO DIRECTORY & FINANCIAL GUIDE



ARCHIVES

2020
  • January 2020 (272)
  • February 2020 (309)
  • March 2020 (344)
  • 2019
  • January 2019 (255)
  • February 2019 (216)
  • March 2019 (285)
  • April 2019 (254)
  • May 2019 (272)
  • June 2019 (251)
  • July 2019 (338)
  • August 2019 (293)
  • September 2019 (306)
  • October 2019 (313)
  • November 2019 (362)
  • December 2019 (320)
  • 2018
  • January 2018 (291)
  • February 2018 (219)
  • March 2018 (278)
  • April 2018 (225)
  • May 2018 (238)
  • June 2018 (178)
  • July 2018 (256)
  • August 2018 (249)
  • September 2018 (256)
  • October 2018 (287)
  • November 2018 (284)
  • December 2018 (185)
  • 2017
  • January 2017 (183)
  • February 2017 (194)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (205)
  • July 2017 (190)
  • August 2017 (195)
  • September 2017 (186)
  • October 2017 (235)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (165)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (245)
  • June 2016 (182)
  • July 2016 (271)
  • August 2016 (248)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (153)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (108)
  • May 2015 (116)
  • June 2015 (120)
  • July 2015 (148)
  • August 2015 (157)
  • September 2015 (188)
  • October 2015 (169)
  • November 2015 (173)
  • December 2015 (207)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950