5 Foolproof Budgeting Techniques for Absolutely Anyone

January 27, 2021

January 27, 2021

When it comes to making a budget, we often relate it to limits, constrictions, and sacrificing things you like and want.

“I can’t go out, I’m on a budget.”

“We live on a budget so we can’t afford nice things.”

“Budget is tight, sorry.”

But it is actually the opposite - making a budget is liberating because it eliminates spending guilt and enables you to build the lifestyle you desire. Consider a budget to be a spending plan, squeezing the maximum value out of every dollar you earn.

There’s a budget technique for everyone, whether you enjoy crunching numbers or would rather stab your eye with a fork than look at a spreadsheet. We’ll break down five approaches to budgeting so you can find your unique style.

Five Easy Budgeting Techniques

The most important thing is to get started, so pick a technique that seems like it would suit you and give it a go. You can tweak it along the way, change to a different approach or combine a couple. You worked hard to earn those dollars. Put them to work for you.

  1. Pay Yourself First

What it is:

A savings technique where you prioritise your long-term well-being over your immediate needs.

Who it’s for:

Literally everyone.

How it works:

When you receive your income, put aside your savings before you spend anything - even before you pay the rent. Treat saving as if it were your most important bill.

Why:

Saving is usually given low priority. We pay the bills and have the best intentions to save whatever is left, but often this means nothing gets saved. By putting saving first, you’re much more likely to tighten the rest of your spending where needed to ensure you still make rent and keep the lights on.

  1. Balanced Money Formula

What it is:

A spending guideline to harness your spending and pay off debt.

Who it’s for:

The person who needs rigid guidelines and instructions. Great for beginner budgeters.

How it works:

Track your spending and separate it into strict categories. Then divvy up your income by the 50/30/20 formula. 50% goes to needs, 30% to wants and 20% to savings.

  • Needs include housing, utilities, transportation, basic food and clothing and anything for your health. Also your minimum required payments for debts.
  • Wants are anything beyond your fundamental needs like TV, getting your hair coloured, going out to eat, or buying shoes when you already have 20 pairs.
  • Savings includes putting money into your emergency fund, your KiwiSaver, and paying debts (anything above and beyond your minimum payments goes here).

Why:

There’s no questioning this arrangement. It’s not about how you feel or what you might want - it’s an efficient, simple and straightforward guideline for anyone to calculate a budget.

  1. Values-based Budget

What it is:

A budget based on what’s important to you, not some one-size-fits-all template.

Who it’s for:

The idealist whose lifestyle is influenced by their values.

How it works:

It allocates more money to things that matter to you. After you cover housing, food and transportation, the rest is budgeted according to what you value.

  1. Track your spending for 3 months. See how much you need on average to comfortably cover your needs.
  2. Next, look at where you’re spending on things that matter to you based on your values. Getting Nana her favourite chocolates every month isn’t a necessity, but it might be worth keeping in the values section of your budget.
  3. Everything else that you have spent money on is either not a basic need or not that important to you. So here is where you cut your spending and shift it towards what you value.

Why:

You create your ideal life by spending more on what makes you happy. So if living without flatmates makes you happy, put more of your budget to housing. If you don’t mind more sparse arrangements, shift your housing budget toward the latest tech or travel or whatever matters to you. It’s up to you to make mindful choices with your money that allow you to live the life you want.

  1. Zero-based Budget

What it is:

A strict plan that gives every dollar a job to do so nothing is wasted.

Who it’s for:

This is for the spreadsheet lovers or avid app users who have a bit of discipline to keep themselves on track. Helps if you have a regular predictable income.

How it works:

It’s based on this formula: income minus expenses equals zero. You tell every dollar where to go. You’ll need to check in regularly to make sure you stick to your plan or adjust it as needed.

Why:

The major point of difference with this method is that you have your money in hand and then allocate every dollar of it, rather than waiting to see what comes in and hoping it meets the budget you designed. This makes the most efficient use of your money and prevents you from spending what you don’t have.

  1. Cash-only Budgeting

What it is:

Use only cash to pay as much of your expenses as possible.

Who it’s for:

The person who needs to physically separate their money in order to stay on budget.

How it works:

It’s probably not practical to pay your rent and debts in cash. But for all other areas like groceries, takeaways, clothing, etc., use envelopes to allocate cash to each category. If you find yourself short, take money from another envelope - but remember the budget category contained in that envelope has now been cut.

Why:

Spending cash makes a greater psychological impact on us than waving a card. It doesn’t require too much effort to separate cash. And, if you don’t have it you can’t spend it. Simple.

Budgeting Makes You a Better Saver

No matter the method you use, it pays to get your spending under control and save for your future. We are all empowered to mold our life into what we want it to be by carefully considering our finances.

If it still seems overwhelming or impossible, get financial advice. BetterSaver is here to guide you on how to use your KiwiSaver to meet your goals. We can help you decide on a contribution rate, type of fund and provider to get the most out of your KiwiSaver. That’s one part of your budget done.

Get expert KiwiSaver advice.

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