How to budget?
Think of a budget as a plan. It’s easier to operate without a plan, but with a plan you are sure to end with a certain result. A financial plan is all about organization and it doesn’t take a rocket scientist to understand them.
To give our plan a name here at Heart Treasure Financials we refer to our budgets as our “Treasure Plan.” Mentally you can remind yourself that budgeting is the plan you set for your treasures. A treasure plan organizes income received during the month to cover expenses. Income is any money that comes into your pockets and bank accounts, and expenses are everything you pay for.
Treasure Plan
Our treasure plan keeps us organized as we spend throughout the month. It starts with a set of goals and realistically matches what we have with what we will be required to pay for the month. In addition, it leaves room for what we, by choice, pay for other things enjoyed within the month. With a treasure plan you will always know what portion of your money is necessary to pay bills, give, put towards debt, save, invest, and spend.
At the beginning of each month it is best to review the treasure plan as a reminder to yourself what is needed. It is a visual picture of your goals. For the most part once you create your plan it will stay the same throughout the year. Your job is to monitor the extra spending weekly just to make sure your account is healthy and your spending isn’t overboard.
Types of Budgets
There are three main types of budgets:
50/30/20 method
50% Essentials
30% Personal Spending
20% Goals (savings, investing, debt repayment)
Designate certain percentages of your budget to meet your needs. Percentages serve as a visual of what you can realistically cover financially. The 50/30/20 method uses half of your income to cover your needs and leaves the other half for your personal benefit.
For example, with an income of 4k a month, 2000 would cover your needs, 1200 would be available for your personal spending, and 800 would go towards your financial goals. This works best for the person that likes to spend now and enjoy more in their working years while still maintaining a progression in their savings and investments.
60/40 method
60% Necessities and Bills
40% Personal Spending and Goals
Do you prefer a higher standard of living? The 60/40 method may work in your favor. The majority of the monthly income in this method goes towards your living and bills. This would cover the necessities such as mortgage/rent, insurances, cable, and other monthly bills that you lock in rates for. Remember to include any debt minimums.
For example, with the same income of 4k a month, 2400 would cover your necessities, living, locked in rates, and debt minimums. While 1600 would be left for personal spending and goals. You could choose to divide your personal spending in a way that meets your preference of spending more now or saving more for your later years.
Zero-based method
Separate whole check to 0
The zero-based method assigns every dollar of your budget for a particular purpose. This method is ideal for the individual who wants to maximize every dollar of their income for a number of categories. In the zero-based budget you are more specific about each item you spend on for personal spending and savings goals.
The zero-based budget can still use percentages to your benefit, but the amounts vary according to the individual.
Here is a practical budget based on zero-based budgeting with an income of 4k:
25% Living
15% Giving
10% Saving
35% Bills
15% Personal Spending
This allows a mortgage/rent and utilities usage up to 1k. It would also place an intentional value on giving in proportion to your income with a nest egg of 600 a month. Investments would receive 400 monthly and grow over time. For bills with locked in rates and debt minimums you would dedicate 1600 monthly, this could range from student loans, phone bills, cable, streaming services, etc. Under this example you would also leave about 600 to spend monthly on personal wants, resulting in about 150 per week at your disposal on eating out, clothing, and the like.
This budget works best for the individual that prefers to leave room for adjusting their budget to meet their needs in their season of life. In certain seasons of life certain bills take priority. With financial debt payoff plans, certain areas of your budget go away adding more money to other areas. As you pay off your debt you could enjoy more later as opposed to right now.
Create Room for More
Plan your treasures well. As you write down your financial goals, remember that your treasure plan ultimately leads to your ideal landing place. For detailed instructions on how to get a budget in place join the Heart Treasure Financials community and receive a free budget system that you can put to work right away.
Without a budget it’s easy to get sidetracked and waste a lot of time. Whether you start off with percentages or detail every dollar, it’s your vision at work. You are creating room for the unexpected that will come and journeying the best course to experience what you believe is your ideal financial situation.