Why personal budget is important?
Because you can control spending habits, stay on track for your financial goals, improve financial contentment, avoid financial overwhelm, reduce debt and stay financially organized, prepare for emergencies.
What are the most popular budgeting methods?
We believe that the most popular budgeting methods are the 50/20/30 rule, zero-based budgeting which we will discuss a bit now.
What is 50/20/30 budget rule?
This rule involves spending 50% of your after-tax income on your needs, 20% on your “goals” and 30% on your “wants”.
This consists of the following:
- 50% needs: These are things that you absolutely have to pay, no matter what. This could include things like rent or your mortgage, grocery costs, insurance and utilities.
- 20% goals: This are the funds you’ll be allocating towards your financial goals. Looking to increase your savings, pay off debt (except your mortgage) or contribute towards your investments? This is where that money comes from.
- 30% wants: These are the things that make life just that little bit nicer – but that you could live without, if needed. For example, grocery costs come under “needs” but if you like to eat out from time to time, use the money in this pot.
The rule is easy to budget, provides clarity, flexibility, and balance, and helps people achieve their financial goals.
What is ZBB?
Zero-based budgeting(ZBB) – it is a budget planning method, when each financial period’s expenses are planned from scratch, rather than based on the previous period’s budget.
Basic principles:
1. All expenses must be justified – every expense item must be justified from scratch, even if it was important in previous budgets.
2. Prioritization – the budget is drawn up according to the most important goals, not simply by continuing previous expenses.
3. Promoting efficiency – ZBB helps to identify unnecessary expenses and reduce waste of money.
4. Flexibility – unlike traditional budgeting, ZBB allows you to adjust expenses according to current needs.
In personal finance, this means re-determining each month how much money to allocate to housing, food, entertainment, rather than sticking to the old budget template.
ZBB is suitable for both business and personal financial management, especially when it comes to optimizing expenses and ensuring efficient use of money.
How to easily track your expenses?
Here are a few simple ways:
1. Mobile phone apps:
Mint – automatically tracks bills and expenses for you.
Wallet – allows you to link bank accounts and monitor your budget.
YNAB (You need a budget) – oriented towards savings and planning.
Monefy – simple manual type phone app.
2. Using “Excel” or “Google sheets”
If you like more control, you can create a simple table with columns like:
Date
Expenses category(food, transport, attractions)
Amount
Notes
3. Use the cash envelope method
If you like to use cash, you can categorize them into categories and spend only what’s in the envelope.
4. Use bank accounts
Many banks offer the opportunity to review and categorize expenses in their online banking.
5. Write down expenses by hand
The easiest way is to carry a small notebook and record all your expenses throughout the day.
And finnaly
Personal budget – it’s not just numbers, it’s also a tool helping to achieve financial well-being. Planning your income, expenses and savings goals can reduce stress, more easily achieve your financial goals, and live a financially stable life.
The most important thing is to start now!
*Disclaimer* – This is not financial advice. We are not professional financial advisors and cannot make any financial guarantees. The value of your investment can go up as well as down. Only invest what you can afford to lose.
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