Budgeting Techniques & Types

by Chris Joseph

Preparing a personal budget is not a fun task. It forces you to take a hard look at how you spend your money. The budgeting process is essential to your overall financial well-being, however, especially if you want to save money. There are a number of ways you may make budgeting relatively easy.

Committed Expenses

One way to establish your allowable monthly expense level is to figure your expenses as a percentage of your gross monthly income. According to MSN Money, a workable baseline for many families is to allocate 60 percent of gross monthly income to "committed expenses" — regular bills and household expenses. Divide the remaining 40 percent evenly among the categories of retirement savings, long-term savings, short-term irregular savings for unplanned expenses, and fun money. If your current expenses require you to start at more than 60 percent, make the 60-40 mix your goal.

Housing Costs

Another type of budgeting method identifies your allowable housing expenses as a percentage of your gross monthly income. According to the U.S. Census Bureau, your overall housing expenses, which includes rent or mortgage, utilities, real estate taxes and insurance, should not exceed 30 percent of your income. Use this figure as a baseline for housing affordability when searching for a new home, or as a budgetary amount to strive for in your present housing situation.

The Envelope System

The envelope system is an easy technique to help you budget for expenses you don't pay with checks or through automatic bank account withdrawal, such as food, clothing and entertainment. Simply write the name of each expense on a separate envelope and place the amount of cash needed for each for the month. Once you have used up the cash for a particular expense, you must wait until the following month — when you've refilled that envelope — to spend more. This method requires you to think about whether you really need to spend the money.

Paying Yourself First

One technique to ensure your budget allows you to put money away is to pay yourself before attacking your bills. Take 10 percent of each paycheck and set it aside in a savings vehicle such as a bank account. If your employer offers an automatic deduction savings plan, arrange for 10 percent to be withheld from your pay and placed in a designated account. If your expenses don't allow for 10 percent, start with a lower amount and work your way up as you find ways to reduce your monthly expenses.

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