Budgeting Three Ways
There are so many different types of budgets out there. The Spending First Budget, Savings First Budget, The 70/20/10 Budget and so many more. All of them, and many more have their pros and cons. How do you know which one to choose? Which one will suit you and your family? You need to work out what type of budget you would like to follow.
The “I Don’t Want to Budget” Budget
This is a budget people use without realising it. Just before you get paid you look at all your bills, see how much income you have and you prioritise what you will be paying this week. We call this living from pay to pay. It is very hard to save money with this type of budget because you are not planning ahead.
Budget 2. This is the budget I personally use. It involves having three bank accounts.
Account 1 is your living account. This is your everyday living money. You would have worked out your expenses in five steps to creating your budget. Insert those expenses here; food, petrol, entertainment, eating out etc. Once you run out of money in this account, there is no more entertainment for that week.
Account 2 is your bills account. You pay all your bills from this account and any direct debits. Electricity, gas, water etc. If you are very disciplined and know that you will leave the money in this account then you could use it as an offset account for your mortgage (if your bank offers this facility) and pay the bill on its due date. If you don’t think you could leave the money in the account, as it’s too much of a temptation, pay small amounts on the bill each week so that it equals the full amount of the total bill by its due date.
Account 3 is your savings account. For us, this is our holiday account and I have labelled it as such in our online banking app. But it would be anything you would like to save up for. A new television, car deposit, anything you like.
The “70,20,10” Budget or The Slice ‘Em and Dice ‘Em Budget
This budget is the 70,20,10 budget. This budget doesn’t work for everyone as it’s not very flexible but if you can make it work for you this budget is about paying off debt as quickly as you can.
70% of your income is used for all of your expenses. Everything you have put into your budget.
20% of your income is used to pay off your debt. Choose the debt with the highest interest rate and pay this off first. The idea is to pay the bill which costs you the most..Once the first debt is paid off, choose the debt with the next highest interest rate and pay that one off. Continue this until you have no debt left.
10% of your income is put away for saving and wants. So you can pay cash for your wants. Eg I want to go on a holiday.
$1000 a week income
$700 will go to expenses, $200 to debit reduction and $100 will go towards savings.
Just say you have a car loan 13.5%
Credit card 21.75%
Certegy 0% interest just a $3.50 monthly fee
Mortgage 3.99%
Debit reduction would go on the credit card first. Once the credit card is paid off you would put the debit reduction money onto the car loan. The mortgage is the exception to the rule; it will be paid off last due to the size of the loan. So Certegy will be paid off next. Once all debt, except the mortgage, is paid then you can concentrate on paying the mortgage down.
So there you have it, three different budgets. Hopefully there is one there for you.I personally use the second budget, I have tried the third budget but i couldn’t stick to it as I had a lot of bills when I tried to use it. When I first moved out of home it was the first budget all the way. Good luck in reducing your debit, saving for that holiday or whatever else you have in mind that you’re saving for.