Managing Your Budget: How to Know You Are Doing it Correctly

Budget management is always a challenge. How do you know if you are doing it right? At the end of the day, we would want more than enough leftover budget making our savings as fat as pork. Budgeting can be intimidating and sometimes frustrating. That doesn’t have to be.

Budgeting does not mean that you will get rich when you start doing it. However, it will give you a little more comfort in knowing how much money is coming in and going out. It might be scary at first realizing that you might be spending more on eating out which you love so much or spending on online shopping.

It does take some time to get used to new habits. However, this is the same as getting into a habit. Not easy, but workable. This is the time to look at money in the eye and know where you are right now in your finances.

Here are some methods you might want to implement in your daily/ weekly/ monthly scheme, depending on your income scheme too.

50/30/20 Rule

A popular budget method is the 50/ 30/ 20 where you portion your budget as follows: 50% for your needs, 30% for your wants, and 20% for your savings. This is the easiest of all budgeting methods as divides your income into specific percentages. However, upon looking deeper, this only gives you 20% for savings where most likely where extra debt payments will fall into.

This method might be slow progress with your money goal since you do not want to throw more money to those debts. You will be operating on a zero-based method, where all the money coming in is the same as going out. Although, we advise that your bank account should NEVER HIT 0 BALANCE. Whatever money that is left can be used for your Baby Steps - a great way to make sure you crush your debt but still has something for emergencies.

Reverse Budget Method

This method means that you start with allotting to your savings first before you portion your income for needs and finally wants. This is all about making sure that you do not go up on your eyeball with debts and crushing it before it gets too overwhelming. Using this method makes sure that after you pay up all your debt, you start saving for your own, especially for retirement, emergencies, investing to give you more financial comfort in the future.

The 60% Solution

This method means you will put 60% of your income towards committed expenses and this includes your utility bills for example which are part of your essentials and maybe that expensive iPhone 11 phone plan. The rest is portioned to 10% retirement, 10% short-term savings and other irregular expenses, on long term savings or investments like a car, and finally 10% for fun.

Although this method is simple, the backlash on this that it lumps so much on the other categories and the committed expense can be a little bit more problematic in the long run.

What’s more important when budgeting is to track your expenses and learning to say no. There is a lot to this than meets the eye especially when you are hitting the FOMO or “Fear of Missing Out”. In the end, what’s important is that you are fulfilling your personal needs, have some savings, and give some to the charities for the needy.

Whatever method you choose, what’s essential is that it should work for you. How to know if you are budgeting correctly? You get to pay your bills, you are fulfilling your soul and still have some extra. Your well being is the most valuable in any aspect you choose to go about this as long as you do not get yourself in 0 balance and pay what should be paid.

Carolina Money Minders is a premier financial consulting company that can help you do the math and manage finances for you. Carolina Money Managers can assist you on Daily Money Management, Lifestyle Management, Medium, and Small Business Analysis Bookkeeping and Analysis, and Elderly Care.

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