A new year calls for a new resolution. So, this 2022, if you have the mindset of “new year, new me,” you need to learn the best ways on how to budget your money properly.
Millennials at this point have their financial goals, such as establishing an emergency fund, saving money for buying a house or paying off their credit card debt. Check out the 5 tried and proven budgeting tips that can help you improve financially.
1. 50/30/20 Budget
This strategy lets you create a budget from your income based on percentages as follows.
- 50% – for needs (utility bills, mortgage or rent fees, insurance, etc.)
- 30% – for wants (entertainment, travel, dine out, etc.)
- 20% – for savings (emergency savings, investing, etc.)
With this budget, you have a bit more leeway to enjoy your life as you like while working on increasing your savings and paying off debt. But, on the other hand, spending 30% of your income on everything you want may make it longer for you to reach your financial goals.
2. Pay-Yourself-First Budget
One of the most flexible among all the other options is the Pay-Yourself-First budget. As soon as you get your income, you will put money into savings accounts early in the month and pay off your obligatory expenses and credit card payments. Then, the remainder of your money is yours to spend any way you wish.
There are no further rules as long as you fulfil the financial goals you establish for yourself.
To put it in another way, this approach requires you to put the majority of your money into your regular expenses and bills, savings, and investments. You can also set aside money each month for debt reduction.
3. The Envelope Budget
As the name itself says, envelope budgeting is a method in which you determine how much money you want to spend on several categories such as groceries, utility bills, and other expenditures. Then you separate the cash into envelopes designated in each category.
This type of budget has the advantage of allowing you to set a fixed amount of money in various categories and then stop spending when it is completely used up. By doing this, you can stick to your spending limitations and avoid overpaying using a debit or credit card.
4. Zero-Based Budget
Another way to try is zero-based budgeting, which fits well for those who have major financial targets in the future. The goal of this type of budget is to cut waste and ensure that every penny has a purpose.
People who adopt zero-based budgeting must check their expenditures throughout the month to ensure they stay on budget in variable categories such as groceries. Families that use zero-based budgeting discuss finding out how much money they make per month and putting the amount in one column. Then, they sum up all of their basic expenses in another category.
It is also good to start setting up an additional savings account for any unexpected expenses.
5. Debt Repayment Budget
A strict budgeting technique for those who intend to be free of debt as soon as possible is the debt repayment budget. The debt repayment budget is only intended to be utilized for a limited time, perhaps a few years. If you’re disciplined and dedicated, it can help you pay off debt faster.
It is simple to follow this type of budget. First, calculate your monthly income and compare it to your needed monthly expenditure and minimum credit card and loan payments. After that, pay all your expenses and put all of your “excess” money toward paying off your debts immediately.
Advantages of Budgeting
As we become adults, we all have responsibilities and priorities in life, especially financial matters. Plus, we give our time and effort to work and get paid. That’s why we have to manage our hard-earned money properly.
Budgeting may be a beneficial long-term approach to wealth accumulation. Some people prefer budgets that easily pay bills, while others set aside money with each salary.
Moreover, saving money with each paycheck is a great move. Individuals can plan how much money they wish to save and put aside each month in a savings account. This way can assist them in achieving long-term objectives such as funding higher education, owning a property, and retirement.
Developing a budget plan can also lessen the financial stress that often accompanies unexpected job loss or emergency. In an urgent situation, having an emergency fund can come in useful. For example, it can safeguard you from financial disaster if a family member becomes ill or needs repairs at home.
Key Takeaway
Understanding the value of effective financial practices may assist millennials in overcoming any challenges they may experience in their families, education, and careers. Consider the best budgeting tips mentioned above and find which works well for you and your lifestyle.
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