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3 Simple Budgeting Techniques To Improve Your Finances


Whether you are trying to save for a big purchase or simply ready to start spending more responsibly, it’s a great step to look for ways to improve your personal finances. There are many budgeting techniques out there, but there isn’t one that’s right for everyone so it’s best to learn about a few before you decide to try one.


1. 50/30/20 Budget


This budgeting strategy breaks your take-home pay into 3 categories:

Needs - 50%

Wants - 30%

Savings - 20%

Needs include the things you can’t live without, like food, your home, your car and medical expenses. Wants are things you can live without, but that you like to have. This includes going to the movies, out for dinner, etc. Sometimes needs and wants get a little mixed up, like if you’re grocery shopping you probably need bread, milk and eggs, but you don’t NEED that pack of Hershey’s chocolate bars.


The money you put toward savings should account for 20% of your take-home pay. This should not be touched other than in the case of an emergency. This can include money you put into your 401K, other investment accounts or simply your regular savings account.


2. 80/20 Budget


To simplify the 50/30/20 budget even more, the 80/20 budget consists of putting 20% of your take-home pay toward savings and spending the rest freely. This combines the “needs” and “wants” categories which is much easier for some people, especially as a first budget technique to try.

Of course you can make adjustments to this as you see fit. Depending on your take-home pay, expenses and personal finance goals you can adjust it to be 70/30, 60/40 or even 50/50. However, notice that these variations are all allocating more toward savings - the key here is to not allocate less than 20% to savings. Don’t lose sight of your financial goals!


3. Separate Bank Account Budget


This technique takes either the 50/30/20 or 80/20 budgets to a new level. This is a new and easier take on the envelope budgeting system, which is where you take cash out of your bank account and allocate it to spending categories and actually put the cash in labeled envelopes. In this era of technology cash is not the most convenient method of paying for things. This strategy proposes following either the 50/30/20 or 80/20 budget and then actually putting those allocations in separate accounts.


For example, if you are following the 80/20 budget you automatically put 20% of your take-home pay into a savings account. The rest goes into your checking account and you do not touch your savings. If you have direct deposit of your paychecks some employers even give you the option to allocate your deposit to more than one account based on a percentage.


To do this with the 50/30/20 you may need to open a second checking account. An alternative is to take cash out for the “want” category and use your checking account for the “needs” category. Any extra cash that you don’t spend you can deposit at the end of the month!


We know it's difficult to stick to a budget so we put together this article, 5 Practical Must-Do's To Help You Stick To Your Budget. Check it out and find a few strategies that work for you.


Financial freedom begins with good habits!

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