A budget is a lot like marriage – you really have to commit to it to make it work. By creating and committing to a budget you can reach your financial goals. Before deciding on what kind of budget to put together, think about what you want to accomplish with this budget. Is your goal to cut back on all your expenses, limit the amount of money you spend on coffee shop lattes, or save for your dream vacation? Your answer will help determine how to budget your money and the type of budget that best aligns with your goals.
Below are some common budget types to help get you started. Read on to see which one of these budgeting tools fits your needs.
The Comprehensive Budget
The Comprehensive Budget (AKA “The Master Budget”) is as detailed as budgets come. Creating this type of monthly budget is ideal if you have a limited income and want to cut back on your expenses. At the heart of a Comprehensive Budget is a detailed, categorized list of all your monthly expenses. Categories can include rent, utilities, food, clothing, transportation, medical, entertainment, and savings. After you create your list, calculate your monthly income and use that as a guide to set spending limits for each category. Having these types of limits will help you more easily identify the categories where you’re overspending or even saving some money.
The Problem Solving Budget
A Problem Solving Budget is the key to identifying the categories where you tend to overspend. Maybe you found that last month you spent $150 on dining out, but can only afford $75 a month. Or you spent $90 on entertainment, but should only have spent $50. Establishing a Problem Solving Budget will help you set spending limits and stick to them.
The Planning Budget
Whether your goal is to save for a Hawaiian vacation or get braces for your child, a Planning Budget can be a great financial tool. The Planning Budget is ideal for anyone saving for a specific goal. To create a Planning Budget, simply add a new category in your budget for the savings goal you’d like to achieve. Bring this budget to life by paying your other expenses first. Once your regular expenses are paid, take any remaining money and add it to the new category. The money you add to this category shouldn’t be spent until you reach your goal.
There’s also a variation of the Planning Budget called a Cost-Savings Budget. Instead of saving for a specific thing (vacation, home, etc.), the goal of a Cost-Savings Budget is to increase the amount of money you save on a yearly basis. To kick off a Cost-Savings Budget, review your budget for a 12-month period and look for ways to lower your overall expenses. If you identify new ways to save, make those adjustments and stash that savings in the new category.
A budget that works for you can really help transform your financial future. With just a few simple budgeting tools, you can make your goals become a reality. No two budgets are identical (just like no two people are identical), so make sure you tailor your budget to your income and needs. Take the first step toward responsible money management and make a budget today.