by Brad Homer
There are many approaches to keeping your personal budget under control. This article will describe a few of the more popular strategies about budgeting as well as some you may have not heard of.
1. The first, and probably most important budgeting strategy, is to pay yourself first. Put aside at least 2% of your annual income to cover unexpected expenses. When you have to dip into this fund, replenish it. You can save more if you want, but you can put excess savings into longer term investments (with a higher yield) that you don’t need instant access to in case of a budget-threatening expense.
2. Another good strategy for maintaining tight control over your budget is to minimize debit card use; use cash instead. Planned ATM withdrawals are much easier to control than being in the habit of paying for everything by debit. Spending cash also has more emotional impact, so this can help limit frivolous spending.
3. Make your payments automatic. Setting up your regular bills to pay by either auto-draft or online automatic payment can help by greatly reducing the amount of work you do each month to pay your bills. By reducing payment date variance that is inevitable with mailing handwritten checks, you create a more consistent bill paying schedule that is easier to track and budget.
4. If you think about it, strategy 2 and to some extent strategy 3 are minor variations of a very old and effective method of budgeting – the envelope method. This is how your great grandparents did it – back when cash was the normal method of payment. Every item in their budget had an envelope. As they got paid, they split the money up into the envelopes to cover their bills appropriately. When the money in an envelope was gone, it was gone. No overdrawn check fees when using the old-school envelope method.
5. Last but not least, the final strategy here is an assumed prerequisite for all the other budgeting strategies. It is the essence of what people think of when they think ‘budget’. You need to have some form of list of your income and expenses. You need to review and update this list regularly and perform basic arithmetic on the list to keep track of where you are and where you want to be. This tangible representation of your budget can come in many forms: paper and pencil, a spreadsheet, or specialized budgeting software.
Whatever mix of budgeting strategies you use to maintain control over your money, it’s better to have some kind of strategy than no strategy at all. Hopefully this list of strategies has something you can use to add more value to your current budgeting plan.
Millionaire 2020™ can help you on the road to good budgeting.