In managing finances, budgeting is necessary because it is through budgeting that you understand your financial situation better. It will be easier to prioritize financial goals and manage expenses through budgeting. The fun thing is, there are various methods to make a budget.
How to Make a Budget: Various Methods
1. Pay yourself first
Pay yourself first emphasizes the importance of setting aside money for savings before the money is used for various expenses, especially non-priority expenses. With the principle of pay yourself first, you place savings as something that must exist.
This method of making a budget is one of the most popular. 50% of your income is allocated to needs, while 30% is allocated to wants and the remaining 20% is put into savings and/or investments.
3. Zero-based budgeting
As the name suggests, zero-based budgeting is a budgeting method that encourages you to use all the money you have without leaving a dime.
But, keep in mind that this doesn't mean that you spend all your money on shopping. What is meant here is that when you subtract your income from expenses, the remaining amount is 0. Expenses in this case also include savings and investments.
Actually, the 80/20 budgeting method is a simplified version of the 50/30/20 budgeting system. If you use the 80/20 method, you take 20% of your total income to put into savings and/or investments.
Then for the 80% you can use to meet various kinds of expenses, both priority expenses such as paying monthly bills and shopping for daily necessities and non-priority expenses such as entertainment and self-reward.
Also read: Needs vs. Wants, How are They Different?
The envelope budgeting method is effective in minimizing overspending. Why? Because you have separated the money for each need into their respective envelopes. So, in principle if you want to buy things for self-reward, you can only take money from the designated self-reward envelope.
Which is Your Favorite Budgeting Method?
Jagoans, which is your favorite budgeting method? Actually, you can combine one budgeting method with the other.
For example, you can first make a budget using the 50/30/20 method. Then, to make it easier to monitor expenses, you can use the envelope budgeting method. 50% of the total income that you budget for needs can be divided into bill payments, transportation costs, etc. Then you will have a bill payment envelope, a transportation envelope and so on.
The envelope budgeting method may not be practical for some people because they have to provide lots of envelopes and do everything manually.
The good news is, in today's era that relies on technological sophistication, you can apply the envelope budgeting method digitally through Jago, a financial management application.
Through the Jago Pocket, budgeting is super easy and practical. You can create Spending Pockets and Saving Pockets, the number of which can be adjusted according to your needs. Each Pocket can be personalized and has its own account number.
Thus, you can manage all of your finances and expenses directly in one application. Separating money for each need is also very easy because you only need to move money between Pockets, which can be done in an instant.
Ready to be one step better at managing your finances without any hassle with Jago? Start budgeting right away with your favorite method. The Jago application can be downloaded here for those who don't have it yet.