Different Budget Methods: Which Works Best for You?
Creating a budget AND following through
with that budget is a lifelong skill that separates those who manage money well and those who don’t. According to The Millionaire Next Door
by Thomas J. Stanley and William D. Danko, budgeting is one thing that sets the wealthy apart from the rest of us — 55% of millionaires keep a budget.
With all the different opinions on how to budget, the question becomes “Which budget is right for me?” We chose three different budgeting methods for you to compare and see which one best fits your lifestyle.
In the zero-based budget, the money you take in and money you spend should equal out to zero. It’s simple to do: draw a line down the middle of sheet of paper. On the left, write down all your income (job earnings, income from a side job, child support, etc.). On the right, write down all your expenses. Don’t forget to “pay yourself” in expenses by putting a set amount into savings. If it doesn’t equal zero, adjust your spending until it does.
Balanced Money Formula
This budget introduced by Elizabeth Warren is simple in concept and effective if you follow it:
- Spend 50% of your earnings on needs.
- Spend 30% on any wants you may have.
- Allocate the remaining 20% of your income for savings (or debt reduction.)
There are many similar budget methods where your spending and saving are broken down into percentages. The 60% Budget or the Three-Step Budget are good alternatives that also use percentages to calculate your monthly budget.
The Cash Only Budget
This budget operates on the psychological principle that handing over cash as opposed to swiping a card will help you save. Research shows that using only cash makes people rethink their purchases. When you’re using cash, you are more likely to reconsider purchasing a snack at the gas station or buying clothes at the mall.
The success of every budget comes down to one simple question: are you spending less than you earn? Creating a budget can be intimidating at first, but keeping this principle in mind can help you take control of your spending. Also, don’t forget to “pay yourself.”
Budgeting is easier than ever with Ledger, our new personal financial management tool. Knowing how you spend your dollars can be eye-opening and make all the difference when it comes to saving money. Check out Ledger today!
Lincoln Savings Bank, Member FDIC