Three Ways to Budget your Money
Last week we looked at the different types of budgeting expenses; fixed, variable and irregular costs. Next up on our January budgeting series is how you can budget those expenses.
This guide will take you through 3 simple way to budget your money.
1) The 50/20/30 Rule
This budgeting method is super great for beginners! The idea behind this method is separating your income to cover three sections - needs (50%), savings (20%) and wants (30%). For example, your fixed costs would be part of your needs expenses.
Of course, you can always adjust those numbers and allocate more to savings or wants, but the idea is by setting clear percentages for each category it makes it easier to allocate your income and stick within your means.
"Learning to distinguish between a need and a want is your first big financial win"
2) Sinking Funds
Our next method is perfect for those of you looking to save long-term for your emergency fund, or a high-priced item. Or even to grow that holiday budget. Sinking funds allow you to split the costs over a period of time to make it easier to reach that savings goal.
Essentially you split the total money you want to say (e.g. £1000) and divide by the time frame (e.g. 12 months) to calculate how much you would need to save each month (e.g. £83.34). Take a look at our 12 month savings plan below!
3) Priority-Based Budgeting
This budgeting method allows you to prioritise your most important expenses. Each month you rank your expenses in order of their priority. By ranking them you can see clearly which needs greater priority and what can wait if you reach your monthly spending limit.
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Our final instalment in our January budgeting series will cover the importance of an emergency fund and why you need one.