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101 Series: Budgeting

101 Series: Budgeting
Photo by Campaign Creators / Unsplash

Thanks for joining the first of the 101 Series!

Today, we’ll discuss all things Budgeting. I’ll break this post down into two separate sections: Methodologies and Tools.

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About 65% of Americans don’t have a budget

Methodologies

Two of the most popular budgeting methods in the personal finance realm are the 50/20/30 Method and Line-Item Budgeting.

50/20/30 is one of the easiest if you’re just getting into budgeting and need a guiding principle to keep your finances organized. It’s divided like this: 50% of your income is allocated to Needs (rent, bills, essential food/clothes, minimum debt payments), 20% is allocated to Saving (emergency fund, retirement, extra debt payments), and 30% is allocated to Wants (eating out, entertainment, drinks with friends).

First, you’ll calculate your monthly income. Add up all your paychecks for a month and viola, you have your monthly income.

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If you’re self employed or your monthly income varies, calculate how much you made last year in total, then divide that by 12. This will give you an average to start with

Next, calculate your 50/20/30 percentages.

  • Needs: the total of your monthly rent, bills, and essentials shouldn’t exceed 50% of your monthly income
  • Savings: you should aim to save at least 20% of your monthly income
  • Wants: the total of your discretionary spending shouldn’t exceed 30%

Now, use these numbers as guidelines for your monthly spending: try not to exceed 50% of your monthly income in bills, try to save at least 20% or more, and try not to spend more than 30% of your monthly income on wants.

There are many tools out there to track budgeting and spending, but a spreadsheet or word document works perfectly too!

Next, we’ll discuss Line-Item Budgeting. This is what typically comes to mind when you think of a budget: going through, line by line, and allocating your pay check.

To start, open a spreadsheet or document (or if you’re old-fashioned, grab a pen and paper) and start by listing your monthly income on the top.

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If you have a savings goal, deduct that first

Then, list your monthly expenses such as rent, utilities, loan payments.

Next, list out you’re ideal spending amount for wants, like eating out and entertainment.

Ideally, this should balance to zero when you’re done. If you have any excess, this can be saved or invested. If you are in the negative, it’s time to make some tough calls. Parse through your expenses to see where you can cut down to balance out the budget.

While this method can be great for granular analysis of where your money is going, unless you’re diligent about taking out the money you want to save first, it can be easy to overlook.

Next, we’ll take a look at some of the tools available for budgeting.

Tools

A quick search in the App Store can yield an overwhelming result of different apps and programs for budgeting. What’s the best one? Well, the one you’ll stick to!

Every app has its pros and cons, but look for one that is easiest for you to understand and follow.

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Watch out for high subscription fees, and make sure to take advantage of free trials…just remember to cancel if you don’t plan to subscribe

YNAB (You Need A Budget) is one of the more popular budgeting programs, allowing the end user to really drill down into granular categories and set specific savings goals.

YNAB (You Need A Budget) Link

Another app that I personally use is Copilot. It has a simple to use interface, but is still highly customizable. Plus, it syncs with a large array of financial institutions, including Apple Card and Apple Savings! Their AI transaction categorization is spot on and the new cash flow tab is perfect for easy analysis. Download the app below!

Copilot App Link

Join the conversation below with our premium membership, and let me know your thoughts or questions on all things budgeting!

Up next, cash flow 💵