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.
Everybody has their own financial circumstances, so will have their own budget that will work for them. This guide will take you three popular ways to budget your finances, but there are countless other methods out there that may better suit your financial journey.
Trial and error is important to do when getting your finances in order. Budgeting is like learning a new skill - it may be hard, it may take time, you may fail at times, but eventually it will become a habit and be like second nature to you.
As Dave Ramsey said; "A budget is telling your money where to go instead of wondering where it went".
Take a look below for three simple ways 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.
Those bills or expenses that have a higher priority you pay first, and then keep making your way down the list until you reach your monthly budget limit. Those expenses that were left over are transferred over to the following month and the process begins again.
Remember, budgeting is a journey so give yourself permission to take the time to find a method that is right for you.
For more information on budgeting, take a look at some of our previous posts linked below.
We also cover budgeting skills and tips on our social platforms, so do follow us on Instagram.
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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.