A budget is a summary of your anticipated spending and income. By budgeting you can prove that you are aware of how much money is coming in and leaving your account each month. Budgeting also allows to see where you are spending most and how you can lower the amount of money you spend.

Setting a budget assists you in improving your financial plan for today and tomorrow. It allows you to get and pay off debts, save for retirement, make large purchases, and save for an emergency.

Recommended Budgeting Strategies

  • Line Item Budget

Our research shows that one of the most conventional but very effective budgeting strategy is the line-item budget where every expense is tracked per item. A line-item budget is typically set up by the application of a spreadsheet where each one of your expenses or category of your expenses is listed over a chosen time period – normally a month.

  • 50/30/20 Budget

The 50/30/20 budgeting strategy is an intuitive and easy plan to assist you reach your financial goals.

The guidelines for the 50/30/20 budget are easy:

50% of your net income should go towards needs like food and housing. 30% should go towards wants like holidays or new clothes. 20% should be put into savings.

Identifying the distinction between wants and needs is the most complicated part of this strategy. Needs are those expenses that are essential for your survival such as rent, car payments, food, debt payments or mortgage payments. To make sure you are financially healthy, half of your net income should be enough to cater to your needs.

Wants are those nonessential expenses that are ‘nice to have’. They include expenses like movie tickets or having the latest electronic gadgets. Wants are optional payment and mostly things that are nonessential to your survival.

Finally, the 20% of your net income should be put towards savings and investment. This includes actions such as adding money to an emergency fund savings account, investing your money or saving in a lifetime ISA.

  • 80/20 Budget

The 80/20 budgeting strategy is a streamlined 50/30/20 budget. This budget strategy is built on the assumption that you ‘pay yourself first’ and where the rest of your net income goes is inconsequential. You save 20% of your net income and the rest is yours to spend as you wish.

This strategy focuses on savings and can also be adapted to 60/40 or 70/30 if you decide to save 30% or 40% of your net income and spend the rest as you wish.