In its most basic form, a monthly budget shows how much money you bring in and how much you need to spend on your needs. What’s left is yours to spend as you see fit or to save for the future.
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Without one, you’re stuck guessing — and when it comes to personal finance, guessing is a sure ticket to overspending, undersaving, and debt.
A budget is the foundation upon which your entire financial life rests. Here’s how to create one that’s simple yet effective.
Choose your strategy
When developing a family budget, there are several strategies you can choose from, but they all have the same goal: to create a spending plan based on your income, expenses, and savings goals.
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Here is an overview of the most popular budgeting strategies.
50/20/30: This strategy requires you to spend 50% of your income on needs, 20% on savings, and 30% on wants.
Zero-based budget: This strategy assigns a target to each dollar you earn until there are no more dollars left.
Pay yourself first: This method treats your savings goal as your most important “bill”. Pay yourself first, then pay your actual bills and other mandatory expenses.
Envelope budget: With this strategy, you’ll place money in envelopes — physical cash or digital with an app — that each represent different expense categories. When an envelope runs out, you can’t spend any more in that category, but you can carry over unspent money to the next month.
Values-based budget: With this system, you focus on spending only on things that bring you joy, add value to your life, or allow you to pursue your passions.
Choose your method
The easiest budgeting method that works for you is always the best. For many people, this means following tried-and-true analog systems such as a simple pen and paper, spreadsheet, or dry-erase board that everyone in the family can see and edit when needed.
There’s nothing wrong with any of them, but you might find that one of the many budgeting apps available works better for you. Here’s a look at some of the best software for household budgeting:
Mint: This highly rated free app syncs and unifies all your different accounts, tracks your expenses, and automatically categorizes your expenses.
YNAB (you need a budget): One of the best zero-based budgeting apps, YNAB excels at helping users get out of debt and save money. But, at $14.99 per month or $98.99 per year, it’s one of the more expensive options.
Good budget: This app streamlines the budgeting process for anyone using the envelope system – and it lets you ditch the actual paper envelopes. It has a free version and a pro version for $8 per month or $70 per year.
PocketGuard: Designed for people who tend to overspend, PocketGuard focuses on simplified tracking. There’s a free version, or you can upgrade to PocketGuard Plus for $7.99 per month or $34.99 per year.
Adjust and stick to it
Whatever your method or strategy, your budget will fail if you don’t build in flexibility. You need to be able to adapt to things like:
Inflation or other price fluctuations
Holidays and other special times of the year
Saving for a specific purpose like a car, house or vacation
Income or tax changes
If your budget is too rigid, too complicated, or too tedious, you won’t follow it — and the best budget of all is the one you stick to for life.
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This article originally appeared on GOBankingRates.com: How to Establish and Maintain a Basic Monthly Budget
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