5 Common Sense Budgeting Techniques

The Envelope System

2579025866_9bc96fb97d_zThe 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, put 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.

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The 50/30/20 Rule

5694573572_babcf83554_zIn this popular budgeting technique, costs are split into three main categories in chronological order.

50: You should be using no more than 50% of your take-home pay on all the essential expenses in your life (necessities).

20: Put a minimum of 20% of your paycheck towards a strong financial standing by contributing to savings or debt payments.

30: No more than 30% of your take-home pay should be used on lifestyle choices, such as entertainment, shopping, fine dining, cable, and Internet.

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Snowball Budget

5424167326_20a00bcea8_zThis 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 towards paying the debt down each month, beginning with the smallest debt to the largest one.

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Digital Budgeting

3578231818_c682a1135c_zWe've written about PFM apps before and they're incredibly helpful when it comes to personal finance. Many free apps come with budgeting tools.

Yodlee for example is a free service which allows users to set budget goals for your spending, which it categorizes automatically.

The app will monitor your budget goals and email you when you're close to reaching your spending cap. The service also sends you a status report at the end of each month.

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Reverse Budgeting

3160581985_e6a2198434_zThis 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.

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