Budget Techniques
A budget is essential to ensure you can afford your monthly expenses, keep your spending on track and meet your financial goals. While many people simply use a pen and paper to create a monthly budget, there are several budgeting techniques that allow you to create more complex budgets, or meet goals, like paying down debt.
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The Envelope System
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The envelope method of budgeting ensures you pay all of your bills on time, using equal amounts from each paycheck. To use the envelope system, create a basic budget by subtracting all your fixed and variable expenses from your income. Include every expense you have, such as rent, car maintenance, groceries and utilities.
Now create an envelope for each expense you listed. Write the name of the expense and its total cost on the outside. Calculate how much you need to put towards each bill, every payday, to pay the bill on time. When you receive your paycheck, put the calculated amount in each envelope.
Snowball Budget
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Snowball budgets offer a way for people to pay off their debts and afford their monthly expenses. You start a snowball budget by calculating the total amount you owe on every debt. Next, create a simple budget to determine how much excess income you can put towards the debt each month. Then apply that excess income towards the debt monthly, starting with the smallest debt, and working towards the largest, until you pay off each one.
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Budget by Percentages
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You can use recommended guidelines to determine what percent of your income you should be spending on all your monthly expenses. This method works best for people trying to trim their budgets, or people who aren't sure how much they should spend each month. To use this method, divide your income by the percent you want to spend in each expense category. According to CNN, ideal percentages are: 30 percent of your income on housing; 25 percent on taxes; 4 percent on insurance; 15 percent on savings and investments; and 26 percent on living expenses such as food and utility costs. While this method ensures you don't spend too much in one category, you may need to track, and trim, your expenses.
Electronic Budgeting
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Financial websites and desktop software allow you to create simple or complex budgets, track your spending, and compare your household to averages in your area. Financial websites, such as Mint and Money Strands, allow you to create a budget, link your personal accounts, and then track your spending throughout the month to make sure you stay on track. You can view your spending by pie chart or graph, set bill reminders and create savings or debt repayment goals. Desktop software, such as Quicken, has expanded features and often allows you to include your investments or property.
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