What is budgeting?
Many people think of budgeting as something to do when they’re short on cash. But the truth is that budgeting isn’t just for times when your money is tight or your life is undergoing a major transition. Budgeting is for everyone, rich and poor alike. A good budget helps you
- Make long and short term predictions
- Prevent a crisis
- Get the most out of your money
- Plan for major changes
There are a number of ways you can track and organize your money, and you don’t need to be a rocket scientist or numbers geek to do any of them.
- Subtraction budgeting:
- Add up all of your bills in a given month. Then, take the amount you bring home and subtract from that the total of your bills and then subtract an additional amount for savings. The remaining amount is how much you can spend in a given month.
- Cash budgeting:
- You do all of your budgeting in cash, or as much of it as humanly possible. You cash your check, take it home, sort out all of the dollars and cents, and then directly use that cash for everything.
- Proportional budgeting:
- The idea behind this kind of budgeting is to split all of your spending into three categories–needs, savings, and wants and then allocate a proportion of your spending to each category
Get more details on these three strategies, along with two others, in this article and hopefully find the one that works best for you.
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The 3 category budget
Given the goal of budgeting, most people do not need to track every dime they spend. For example, knowing how much you’ve spent on gasoline may be interesting, but if it doesn’t change your behavior, there’s no point in tracking this expense. Most people overspend in just a few categories. Common examples include eating out, buying clothes, buying gadgets, and entertainment.
Try picking the three budget categories you’d like to bring under control, and monitor your spending in just these areas. The 3-Category Budget is easy to implement and can have a significant effect on your finances.
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