If you’re like many Americans, you probably know a thing or two about economic uncertainty. A recent study by the First National Bank of Omaha found that nearly half of all Americans expect to be living paycheck to paycheck throughout the coming year. And 53% of those surveyed said that they don’t have a rainy-day fund that would cover three months of their basic living expenses.
Does that sound familiar?
In this rocky economy, it can be tough to set aside money for emergencies. But achieving a stable financial future is within your reach, no matter what your income is. Most financial experts would agree that the solution is making a solid budget.
Making a budget – and sticking to that budget – is a great way to take charge of your finances. That’s because budgeting is all about cold, hard, numbers. Budgeting will keep you from overspending and will help you reach your financial goals, little by little. Keep reading for a rundown of some of the best budgeting methods and tools out there.
What kind of budget is right for me?
It might take a little bit of trial and error to find the right kind of budget for you. Depending on your personality and your goals, you might need a more hands-on approach, or you might prefer an approach that focuses on savings. Here are a few of the most popular budgeting styles.
The classic line-item budget
The line item, or zero balance budget is what most people envision when they hear the word “budget.” To get started, just make a list of all the different things you spend money on each month. You list will probably include items like rent, groceries, and utilities. Next to each line item, put a target sum of money: that’s the amount that you should be spending on that item each month.
The grand total of your line items should be equal to, or less than, the amount you earn each month. If it isn’t, you’ll need to adjust accordingly. Making a zero-balance budget can help you figure out where you’re overspending and where you can cut back in order to live within your means.
The Envelope Budget
This approach is great for people who like to be hands-on with their money. At the beginning of every month, just cash your paycheck and distribute the cash into envelopes. Label each envelope to show its purpose. So, for example, you’ll have one envelope marked “food,” another marked “rent,” and another marked “phone bill.”
Some people find that dealing with credit cards and bank account transfers is simply too abstract and causes them to lose track of their money. For those people, an envelope budget is a great solution because it allows them to visualize their money.
The Pay Yourself First Budget
This approach works well for people who want to set money aside but may struggle with self-discipline. Here’s how it works: every time you get paid, set a certain portion of your paycheck aside to save. Put the money directly into a separate account which you can’t touch!
You can save towards a big purchase, like a house, a car, or a new set of furniture. Or, you can save towards a long-term goal, like retirement, or a college fund for your kids. The point is, with this system, saving becomes automatic. You don’t have to think about it until it’s time to reap the benefit of the money you’ve set aside.
There are a lot of free online tools that can help you with the budgeting process. Again, you’ll need to pick the tool that’s right for you and your family. Here are two of the best options.
You Need a Budget (YNAB)
YNAB helps you create a zero-balance budget and track how you actually spend your money, day to day and month to month. The app syncs up with your banks and your credit cards, so that you can keep an eye on every dollar that comes in or goes out. YNAB also provides helpful breakdowns of your monthly spending trends, email reminders, and tips.
Mint is great for people who want a visual on their money. The app shows you your bills, your debts, your retirement funds, and your credit score, all in a glance. It also helps you out by automatically creating a budget for you. However, Mint bases its budget on the way it sees you already spending your money. This means it’s not a good option for people looking to make changes to their habits. The app also gets criticized for being hard to adjust, and not intuitive to work with.
Whether you use a special app or a couple of envelopes, budgeting can help you turn your financial life around. In the end, it probably doesn’t matter exactly which system you choose. What’s important is that you find a method that works for you, and that you stick to it. Achieving financial stability is within your reach – it’s just a question of getting started on the right path. If you haven’t found the right solution to help you get out of debt, try consulting with one of ClearOne Advantage’s Certified Debt Specialists at 888-340-4697.