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3 Tried and True Budgeting Plans

Budgeting is widely touted as the key to financial stability, and it is a vital component of any solid financial plan. Without a budget, it’s all but impossible to live within your means. Most people, however, have had at least one budgeting failure. Here are three tried-and-true budgeting plans that have high success rates and can help anyone get back on solid financial footing.

The Envelope System

Blog 3 Tried and True Budgeting Plans

The envelope system requires a set of envelopes, each of which is labeled with a budget category. Most people have envelopes labeled, “groceries,” “entertainment,” “housing” and so on. Many also have an envelope labeled “loans,” which may be for student loans, car loans, credit card debt, personal loans or other such debts.

At the start of each month, the budgeted amount is placed into each envelope. As money is spent, it’s removed from the appropriate envelope. Once an envelope is empty, no more can be spent on that category until the following month.

This budgeting strategy works well with cash, but it can also be adapted for online banking. You can either open up multiple checking accounts, with each account serving as an "envelope," or using a personal finance application such as mvelopes.com that can help categorize your purchases.

The Priority System

The priority system works well for people who are on an irregular income, such as self-employed individuals. With this system, bills are prioritized each month. The most important ones are placed at the top of the list. A typical list might go as follows: (1) rent, (2) groceries, (3) gas, (4) utilities, (5) entertainment.

As income comes in, the next-highest expense is paid. Thus, even if every bill isn’t paid in a month, the most important ones will be.

The 50-30-20 System

The 50-30-20 system provides guidelines on how much income to put towards the most general categories. With this system:

  • 50 percent of income is used for essential expenses (e.g. housing, gas and groceries)
  • 30 percent of income is given to discretionary spending (e.g. dining out and travel)
  • 20 percent of income is directed toward financial goals (e.g. saving for retirement and paying down debt)

If you’ve tried budgeting before but didn’t succeed, don't give up. Even people who successfully budget now have failed in the past. Pick one of these three tried-and-true strategies and begin budgeting again. Your checking account will thank you. If you have more questions about budgeting don't hesitate to contact us.

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