Most people I know, especially those under the age of 30 tend to live in the here and now. Some people I know that are over the age of 40 also live that way as they have had family tragedies and believe that you should live every day as if it’s you’re last. Budget are not sexy, they make people feel like they need to lead less exciting lives and be more boring. This isn’t the case. There are so many different types of budget that you can make them fit your lifestyle.
So no budgets are not boring. Budgets are sexy. Let’s get serious for a moment though, Budgets are very important for your future and the future of your loved ones. When you have a budget that is right for you and your lifestyle and you stick to it you will be amazed at what you can achieve.
Types Of Budget:
There are many different types of budget but I dont want to confuse you or give you too many options. For me, it works best if we stick to 4 different types of budget. They apply to all types of people and I have had first-hand experience with at least 3 of them.
So having said all that lets dive straight in and have a look at them.
Types Of budget:
1: The Debt-Free Budget:
This is the one I’m currently working through. I would say probably the one that most people would find fits their current situation. This is the budget whereby your monthly bills are all paid and you have a little left at the end of the month.
Unfortunately for you, there are also credit card and or loan payments to be made as you have debts.
The easy way to reduce your debt is to pay a little more on your cards or loan payments each month. This will mean you may have to make a couple of small cutbacks. Most importantly you dont need to start getting spreadsheets out and track all of your finances.
Dont Forget to pin this for future reference.
Easy cutbacks to make are things such as cutting the sky TV bill or perhaps reducing your mobile phone bill by changing contracts. Other ways include shopping at cheaper supermarkets or reducing fuel costs by walking or cycling to work a couple of days a week.
These little cutbacks dont really impact on your life too much but could see you save an extra £100 a month or so which you add on top of your normal loan or credit card payments to reduce the overall outstanding amount.
You will be surprised how much quicker it reduces when you just add that little bit more.
If you want to track some of your finances you can but no need for spreadsheets. I would just use an app such as Mint or Spendee. These are available on both Android and Apple and can help you track your incomings and outgoings while on the go, this makes it much easier to stay in control throughout the month.
The 50/30/20 Budget:
This budget has been called many things in the last few years and the numbers may have changed slightly. For example, when I was growing up it wasn’t called anything it was just an idea that after taxes and housing costs etc you should spend a third save a third and invest a third of the remaining money.
I guess that would still work well today, but of course, we need a fancy name to put to it and this 50/30/20 split budget is the new one doing the rounds at the moment.
The first thing you need to do is work out how much money you have left after taxes. If you have a pension amount taken out of your pay automatically then you will want to add that back on as the figure can be put into a different bracket.
How It Works:
So let’s start with the 50% this is the biggest amount so it makes sense to start here.
50% of your budget is for Needs, This, as you can imagine, incorporates a vast number of things but is basically everything you need on a monthly basis. No, you dont need those new shoes or a new watch. This is strictly a what you need list.
So as you can imagine there are a few things you can throw right into this list. Things such as your mortgage or rent. Utility bills such as electric and gas. Credit card and loans count too but if you are overpaying then this extra amount is a Want, not a Need.
So, in short, you must differentiate between your Needs and Wants.
30% of your budget is for your Wants, Now wants doesn’t mean everything, you still have to have a little self-control. A Want can’t be a 5-day all-inclusive self drive around the Italian Amalfi coast.
A Want can be a mobile phone contract with extra data or that sky sports package you have been looking at, perhaps even a pair of shoes you have eyed up in the black Friday sales.
Keep it simple as you will probably when looking through your Wants list see that you spend more on Wants than you might think.
20% of your budget is for savings and debt management. So this is the boring bit but it is vitally important. Any kind of savings or debt management can count. However you need to be smart, if you have a credit card where you are paying 30% of your payment on interest then it makes sense to put all of your 20% budget on that card to try and reduce the payments.
Once you start to put that whole 20% of your wages after tax on your debts you will see them soon start to get lower and the lower they get the more motivation you will find to continue sticking to this budget.
The Goal-Driven Budget:
This is great for me as I’m a goals kind of guy. Listen I used to be that person that when I wanted to go on a short break somewhere with my wife then I would just throw it on a credit card and think about it later.
Unfortunately for me, I wasn’t in a position financially to do this so this budget worked great for me.
Pick a goal that’s important to you. For example, my latest one is to visit family in Australia. Sure I could put it on a credit card but it will feel so much better if I put a little away each month and then when I buy my ticket in a few months it will give me complete peace of mind that it hasn’t gone on a card.
Obviously your goals could be bigger or smaller depending on what you are after. New car, new clothes, A better mobile phone contract, you get the idea.
A spreadsheet is great for this but you could just use a bit of paper or a pad. Write down your goal. Make sure it is at the top and highlighted to keep it at the forefront of your mind. This helps for when you are cutting stuff out of your monthly spend.
With that goal in mind write down some of the things you may spend on a daily basis. A takeaway Coffee, A can of Energy drink to keep you going at work. A takeaway meal in the evening. I bet you are surprised when you add up the cost of those things
Once you have decided on the few luxuries you are going to cut down on you can deduct that amount from your wages and put in a separate account if you have one. This is your goals orientated budget. Out of the types of budget available, this is the type I’m most likely to stick to.
The Financial Freedom Budget:
Now, this budget can be chopped and changed dependant on one thing, What does financial freedom look like to you.
To me, financial freedom means not having to work 40 hours a week. It also means having way more time to spend with family. If I want to go away to a warm climate for 4 weeks then I can. If I want to treat my wife to something without counting the pennies then I can. This is financial freedom for me.
To other people it might mean more than that and to others less. For example, some people might call financial freedom the fact that they have no debts. So you need to work out what financial freedom means to you and then create a budget around it.
Work out how much money you have coming in and the amount you have going out and then work out what you’re left with. You also need to look closely at any debts and work out which ones need priority in regards to paying off.
Usually, you would pay off the debts with a higher interest. Consider seeing if you can get a 0% interest card, I talk about those in this article.
If you can, then swap as many of your high-interest debts onto that card. Then make sure you throw every last penny into that debt.
Financial freedom starts with having no debt and this is the best way to do this.
As you can see this is just 4 types of budget and they are called something different everywhere you go. I would make a start by just working out your incomings and outgoings. After that, I would look at where you make unnecessary spending.
Once you can tackle that then you are halfway there. Work out which debts need to be cleared first then work on those. Within a few months, you would have made some headway and that is half the battle.
Good luck in your budget planning. Hopefully one of the types of budget listed above will help you out. If you need any help I have a free Simple budget planner which includes all the basics you will need for free on my site, simply subscribe here and receive this budget planner for free.