4 Methods of Budgeting
Learning Outcomes:
- Determine your current monthly income and expenses.
- Determine your desired balance of spending and saving.
- Track and adjust your spending and saving habits with the help of worksheets, the 50-20-30 rule, cash stuffing (the envelope method), free apps, and Microsoft Excel spreadsheets.
Budgeting
The following two videos show different approaches to budgeting but focus predominantly on income and expenses.
Budgeting Basics
Watch the video:
Cash Stuffing (The Cash Envelope Method)
Watch the video:
Please note: There is a math error in the preceding video in the discussion (that begins at the 1:30 minute mark) of what a good cutback is. The cutback is written as $120 when it should be $140, because 20% of $700 is $140.
Tracking Your Budget
Creating a budget is only the first step. It is important that you keep track of your monthly income and expenses to make sure you’re sticking to the budget that you created. However, budgets are not static and can (and should) be adjusted when they vary consistently from actual income and expenses.
Watch the video:
There are different tools available for tracking your budget. In deciding on which one to try, you should consider your unique needs and abilities to use the programs and apps consistently. Keep in mind that consistency is important in budgeting and tracking actual expenses. Any tool or app is good for you only if you are actually using it consistently, so choosing the latest or flashiest app will not help if you are not going to use it.
50-20-30 Rule Budget Calculator
The 50-20-30 rule uses three different categories to organize your spending: Needs, Debt/Savings, and Wants. Needs take up 50% of your budget, Debt/Savings take up 20%, and Wants the remaining 30%.
As with all spending plans, in order to be successful you must be realistic with yourself about your needs versus your wants. What expenses are necessary for your basic well-being, and what expenses are not? What expenses will bring you closer to reaching big-picture goals, and what expenses will bring you only short-lived pleasure?
This handy calculator balances the numbers for you, assigning specific dollar amounts to each category of spending.
Analyzing Budgets
In this activity, students will:
- Use the “Analyzing budgets” worksheet to determine whether a scenario from the “Budget scenarios” handout meets the 50-30-20 rule.
- Give advice to help the characters in the scenario meet the 50-30-20 rule.
Download activity:
The key takeaways in this activity are:
- A budget helps you decide how much you’ll need to spend on necessities, how much money you’ll put aside for savings, and how much you can use for your “wants,” such as dining out or travel.
- A budget should be made using your net income, which is the amount of money you receive in your paycheck after taxes and other deductions are taken out.
Excel for Budgeting
Watch the video:
Microsoft Excel offers a variety of different templates for organizing and tracking your expenses and savings. Download the Personal Monthly Budget template or choose an alternate one to fill out on your own.
Budgeting Tools
Tools from Banks
One advantage of keeping your money in a savings account is the applications provided to you by the bank for creating and maintaining a budget. Here is a list of different apps available from different banks.
Tools not from Banks
- There are also applications from other sources that you can use for creating and maintaining a budget. Here is a list of freestanding apps available not from banks.
- You can also learn more in the chapter on Financial Technology (FinTech) Products and Banking Arrangements and the chapter on Changes Brought About By Investment Technology.
Key Takeaways:
- In order to stick to a spending plan, you need an accountability system such as a budget worksheet, cash stuffing (the envelope method), following the 50-20-30 rule, or other budgeting tool.
- You should consider your unique needs and abilities to use tracking budget programs and apps in deciding on which one to try.
- Maintaining a realistic picture of your expenses and savings will enable you to set realistic expectations.
- Finding a consistent budget that works best for your specific situation is the key to saving money and reaching big-picture goals.
