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How to Choose a Budgeting System Based on Your Goals

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If you've ever considered the benefits of budgeting before, then you'll know that there are many different systems that you can use to manage your spending habits. These "budgeting systems" as they're called, are intended to give you the guidance you need when you're figuring out how to organize your money.

Budgeting systems aren't just there to restrict you to a specific spending pattern. These strategies also help you to better understand your relationship with money too.

The question is, how do you choose the right option for your goals?

Choosing a Budgeting System Based on Your Goals

The best way to make sure that you're on the right track with your budgeting strategy is to start with a financial self-assessment. Think about what you want to accomplish when you start budgeting. For most people, the main reason to create a budget is simply to gain more financial freedom. When you know where your money is going each month, it's easier to control your spending.

However, you may have other targets that you want to accomplish too. For instance, maybe you want to get out of debt or stop yourself from spending on impulse as often as you currently do.

Here are a few strategies you can consider based on your goals.

  1. The 50/30/20 Budget - For Getting Started

If you're just exploring the possibilities of budgeting for the first time, then one of the best strategies is the 50/30/20 budget. There's a good chance that you've heard of this concept before. It works a little bit like this. 50% of all the money that you earn goes towards the essential bills that you have to pay. That includes the expenses for your rent and utilities. It also includes loan repayments, which should be as low as possible if you've made sure to compare your options first.

The other 50% of your income is split into 30% and 20% chunks. 20% goes towards your savings and long-term expenses. The 30% is for the things that you want right now, such as meals with friends and entertainment on weekends. You can swap these percentages if you care more about your savings than having everything you want right now.

  1. The Envelope System - For Managing Impulse Spending

One of the main reasons that people struggle with their finances is that they have a hard time with falling victim to frivolous spending. These days, when you can buy everything through contactless purchases, it's easier than ever to spend money without thinking about it.

However, with the envelope system, you withdraw all the money that you need for a week and set the cash required for certain bills and expenses into different envelopes. That way, you only have a certain amount of money available to you, and you can't go over your limits easily.

This process also reminds you what it feels like to spend real money and be left with nothing in your envelopes at the end of the week. It's a much more tangible experience than using a card.

  1. The Pay Yourself System - To Build Your Savings

If the whole purpose of your budgeting strategy is to build up a strong savings account or collect as much money as possible towards your next financial goal, then the "Pay Yourself system may be a good bet. Some people refer to this tactic as the "reverse" budget, as it puts your savings before all immediate expenses. Remember, to use this plan; you'll need to be willing to give up some of the things that you might want straight away. For instance, you'll probably have fewer takeaways and meals with friends.

However, you'll also make sure that you're putting the right amount of cash away each week to reach your savings goals as quickly as possible. If you're eager to build your savings account, this could be the strategy for you.

  1. The Zero-Based Budget - To Get the Most out of Each Dollar

Finally, this budgeting strategy is designed to suit meticulous planners and people who regularly overspend too. It's all about making sure that you get the most out of every penny you earn. The zero-based budget accounts for every dollar of your income.

Ultimately, you look at the money that you get in your bank each month and find a way to deliberately use each dollar for something crucial. For instance, you'll use a certain amount for entertainment, another amount for savings and so on, until there's nothing else. You don't have to use cash, like with the envelope system, but you will need to track everything you spend to keep yourself on budget.

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