Eight Ways to Budget for
Eight Budgeting Personalities
The First of the Eight Ways to Budget -- The No-Budget Budget
Most people who believe that they entirely lack the budgeting gene stick to an informal sort of spending plan all the same. Say that you save nothing and always owe money on credit cards. Would it be fair to say that you keep to a budget? If you try to limit the amount of your credit card debt to $5,000 (or any other number), it would be fair to say that. It’s not a terribly effective budget, to be sure. But any rule that you follow that places
a limit on your spending
is a form of budgeting.
We all are capable of budgeting. I hope that that comes as encouraging news to those who find money management a struggle. You don’t need to learn new skills. All that you need to do is to learn how to execute the skills you already possess more effectively. The road to
effective money management
is not as steep as it looks.
The Second of the Eight Ways to Budget -- The No-Numbers Budget
If you like
the idea of saving
but you can’t stand the idea of keeping track of what you spend, this is the budget approach for you. Many effective savers never write a formal budget. They just keep in mind the benefits of saving, and thereby keep their spending under control.
I see great benefits to writing a formal budget. If you happen to be one of those people with a natural love of saving, though, this easy budgeting approach can work well indeed.
The Third of the Eight Ways to Budget -- The Looking-Back Budget
With this approach, you do not write down spending categories and allocate spending amounts to each of them. You look at your credit card statements at the end of the month, take note of how much spending you directed to different types of products and services, and ask yourself “was it worth it?” When you feel remorse, you try to learn a lesson from it.
Budgeting does not have to be difficult. This approach probably does not take more than 20 minutes worth of time per month. But it does the job for a good number of Financial Freedom Community members.
The Fourth of the Eight Ways to Budget -- The Pay-Yourself-First Budget.
With this approach, the only decision you make is how much you want to save. You set that amount aside before making any spending decisions, and then leave yourself free to spend the remainder of your income in any manner you please.
What I don’t like about this budgeting approach is its suggestion that saving must be forced. I prefer to compare value propositions,
compare value propositions,
to spend when spending offers the most life enhancement and to save when saving offers the most life enhancement.
That said, this is the most popular approach to budgeting. Many swear by it.
The Fifth of the Eight Ways to Budget -- The Monthly-Allowance Budget.
This is a variation of the “Pay Yourself First” budgeting approach. With this approach, you first cover your basic costs of living and finance your saving plan and then allocate to yourself a specified amount that you may spend, without making any attempt to say in advance how you will allocate it to the various spending categories.
The only distinction from “Pay Yourself First” budgeting is that you identify the amount that is available to you to spend as you please. Knowing the dollar amount of your “spending money” might cause you to allocate more to saving and less to “spending money” if a number of raises cause this amount to increase to a point at which you come to feel that your spending has become profligate.
The Sixth of the Eight Ways to Budget -- The Flexible Budget
You maintain a list of spending categories and allocate dollar amounts to each of them. You do not, however, check to see that you are “following” the budget on a regular basis. The assigned amounts are viewed as goals rather than requirements.
I believe that assigning dollar amounts to the various budget categories is an insight-generating process. But many people are not willing to take on both the task of writing a budget and the one of keeping track of spending regularly. This is a good choice for those who see benefits to keeping a formal budget but who are not willing to spend too much time and effort doing so.
The Seventh of the Eight Ways to Budget -- The Detailed Budget
With this approach, you record every dollar you spend to one of the budget categories. When you spend too much, you either move the money from another category to cover the shortfall or maintain a deficit that needs to be covered in subsequent months.
Those who follow this approach are maintaining their personal finances in the way that a business keeps its books. There are great long-term financial planning benefits that follow from adopting this approach.
The Eighth of the Eight Ways to Budget -- The Life Plan
This approach goes a step beyond just keeping books in a businesslike way. This is a
in which you see your money choices as decisions determining what sort of success you are going to have in attaining your life goals. You make an effort to see that your decisions about money reflect your personal priorities. You change your budget to change the direction in which you want to see your life headed in days to come.
This is my favorite budgeting approach. It takes the most time. It is also the most fun approach to budgeting. You learn so much about yourself following this approach that, after some time, budgeting no longer is viewed as a chore. When you reach that stage, you are well on your way to achieving financial freedom early in life.
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