Budgeting is too complicated! How do I even start?
Budgeting Tips for Different Income Earners: A Guide to Optimizing Finances
Budgeting is one of the simplest finance concepts out there but it seems people unfortunately have made it very complicated.
Our grandparents, parents ,everyone used to budget but now its a complicated task.
Why is that?
With the use of excessive tools, spreadsheets, Excel and apps, it is becoming harder and harder to budget. People are succumbing to ‘Cognitive Overload’ or simply put they are getting overwhelmed by all the things available that they use their energy in choosing the right method and not really implementing it.
An analogical example of this :
How many times has it happened that You go on Netflix and get overwhelmed with content that you find there. And with so many choices available you end up choosing nothing and you scroll through the app and then go away.
A similar phenomenon is happening with budgeting also and people are really struggling to budget.
Let me help you understand 5 simple techniques to implement in your daily life
Technique 1: If You save 0, Then You Must Save 1
Very simply put,
If you saved 0% of your income this month, then the next month your aim should be to save 1% of your salary and then the month after that your aim should be to save 2% of your salary.
But to what extent should you follow this technique?
Your broad goal or vision should be to reach the 20% mark and so as you try to reach this goal, it will help you to get into habit of budgeting, and also make this exercise enjoyable for you like a level up
Technique 2: Envelop Budgeting
This works for people well who want to spend money in cash.
If you start spending in cash, you can easily track where your money is going. Also when you give cash out, it hurts you a little bit making you more conscious of your spending.
So the aim is to divide your monthly expenses into 4–5 categories. Now go to the ATM, get your money out and put the pre-decided amount of money into the envelop of that category.
Whenever you want to buy something, you take money out of that category envelop. At the end of month, the money that is left becomes the saved money for that category.
What this method does is, it gets you into habit of giving out cash and really think about the expenditure that you are going to make.
Technique 3: Balance Budget Formula (50–30–20 rule)
This is a very popular formula everywhere on the internet that you must have heard of which recommends you to divide your income as:
50% for your needs
30% for your wants
20% for your desires
It is a very common mistake for the people who are new to budgeting considering the people who have just started earning will find at least 50–75% of their income going into needs.
So if you would have followed this formula, you would have deliberately failed and you would think that budgeting is a more complicated task than it has to be.
This formula is actually recommended for those people who have reached a little further in their career.
Technique 4 : Value Time More (big money vs Small Money budgeting Method)
This technique is for the people who are making a decent amount of money.
In this technique you only track your big expenses and forget about small expenses since the small expenses would not add up to a significant chunk as compared to your income and it would actually take more amount of time and energy to track those small expenses.
Technique 5 : Fun Money Stage (1% fun money rule)
This is a technique for high net worth individuals
It dictates that whatever you are making in a month, you take 1% of that money and you target it as a fun money budget.
In this technique you allocate the money and you do not track this 1% of your money. The rest major expenses you still track though.
Hopefully these methods would help make your budgeting life much more simpler and much more enjoyable.
Happy Budgeting (^.^)
This post was inspired by the knowledge given by Akshat Shrivastava
