Four Common Budgeting Methods

When it comes to budgeting, there is no “one-size-fits-all” answer.  You have to make your budgeting style work for what’s best for you and your lifestyle.  That being said, there are four common budgeting methods people tend to turn to when starting a budget.

Incremental Budgeting Method

This method can also be called the “traditional” budgeting method.  This is where you take your budget from last year and use that data to make your budget for the current year.  Basically you are just assuming everything will be the same except for a few incremental changes from year to year.  This method works because you already have a baseline idea of how much you spend in a year, so there isn’t any guesswork involved.  However, if you are using this method, it’s best to really look at your year as a whole and find any new budget categories that might need to be implemented into your yearly budget, just so you aren’t caught off guard.

Zero-Based Budget Method

A Dave Ramsey favorite, this method takes into account your entire monthly income and assigns it to categories until there is no money left. In zero-based budgeting, every single dollar you make has an assigned category.  Now, the categories can be called “extra” or “spending money” if you have money left over after all of your expenses, but it still has a home in your budget. The goal is to have no leftovers at the end of the month. Many people enjoy this method because they like knowing exactly where everything is supposed to go.  If you are more of a spontaneous person, this method might not work for you.

Activity-Based Budgeting

Activity-based budgeting is the idea that you are setting up your budget according to the activities you participate in.  For each activity (even if that activity is grocery shopping) you will assign a certain amount of money and stick to it. This helps you know exactly where your money is going and how much certain activities are going to cost.  This method helps give you goals to work toward and realistic expectations of where your budget is headed.

The 50/30/20 Rule

Some people work better on percentages–that’s where the 50/30/20 rule comes in.  This budgeting method is simple. First, you add up all of your after tax monthly or yearly income.  Then you make sure 50% is going towards your needs such as housing, utilities, food, insurance, etc. Then you budget 30% for your wants–hobbies, eating out, clothes and entertainment.  The remaining 20% goes toward debt repayment (if you have it) or savings. This method is simple and straightforward, and it works for many people who don’t like to get into the nitty gritty details of a budget.

Whatever method you choose, budgeting still comes down to tracking your expenses and knowing how much you have coming in and going out each month.  If one budgeting style isn’t working for you, don’t be afraid to try other methods. When you find one that is easy to stick to, you won’t have to struggle to budget ever again.

4 Ways To Raise Your Credit Score

Having a high credit score is a big goal for the majority of people.  If your credit score is low, it can cause all sorts of issues if you ever try to buy a car or rent or purchase a house.  So how does one improve or raise their credit score? Here are a few tips to help you do just that.

Pay Off Debt

If you have a ton of credit card debt, then your FICO score is automatically going to be lower.  The more you owe, the lower it gets. It takes all of your lines of credit into account, and it sees how your current debt stacks up to how much you can borrow.  If you don’t have much wiggle room in this ratio, your score will fall. So the best thing to do to raise your credit score is to pay off most or all of your owed debt.  Paying off credit cards in full will definitely give your score a boost.

Time Your Payments Correctly

Creditors report your balances to the credit bureaus once a month.  If you pay your bills right at the due date, your score could be lower.  This is because the report to the credit bureau goes out well before the due date, usually around the time the billing cycle ends.  So if you make a large payment, or pay the card off in full, it’s not reported until the next month if you pay it after the report has been made. The lower your balance, the higher your score.  Therefore, you need to make a payment before the report is made. To find out when your creditor sends the report, you can check out your personal credit report, or call your creditor directly and ask them when they send it off, then plan your payments accordingly.

The Piggyback Method

If you are a person with little to no credit to their name, then you can boost your score with a method called “piggybacking”.  Find a person (parent, spouse, etc.) who you know has good credit, and have your name added to one of their accounts. In a month or so, you will have a good credit score because they have a good credit score.  Now, this methods takes a lot of trust between both parties, so make sure you use it responsibly.

Dispute, Dispute, Dispute

Always dispute any information on your credit report that is wrong or untrue.  When you have something negative or wrong on your report and it goes into dispute, it is suppressed from your credit report until it is resolved.  This results in an immediate boost to your credit score. If the dispute is resolved in your favor, then the boost will be permanent. So it’s always important to keep track of your credit report and report any fishy information.

These are just a few ways to boost your credit score quickly.  Keeping a low debt balance and managing your money responsibly is what will keep it on the high end permanently.  If you aren’t regularly keeping track of your credit reports and credit scores, now is a good time to start. It will help you on your path to financial success.

Bad Habits That Kill Your Budget

It takes a lot of work to stick to your budget and reach your financial goals.  If you feel like you are just treading water instead of making progress with your finances, it might be time to look at your spending habits.  Here are some habits that will kill your budget that you probably haven’t even thought about.

No Grocery Plan

Everyone shops for groceries differently, and many people go to the store several times a week for smaller shopping trips instead of one big store run.  They feel like since they aren’t spending a lot of money at one time that they are probably saving money. Usually, the more trips you make, the more you spend.  If you make a meal plan and do one big shopping trip for everything on your list (and only items on your list), you will undoubtedly spend less money on groceries as a whole, therefore making your budget easier to stick to.

Eating Out Too Often

As we all know, if you eat out too much, it can be bad for your wallet.  However, many people don’t realize how much they are getting food out. Eating out doesn’t just happen at restaurants, it happens at coffee shops, convenience stores and sometimes even grocery stores.  If you are serious about sticking to your budget, make every single meal or drink you consume at home. Then, plan your meals out according to your budget. You will save more money doing this than you might think.

Reading Retail Newsletters

If you are someone who likes to do most of their shopping online, you are probably no stranger to the lovely email newsletters that companies send out frequently.  Some stores send at least one a day. They are eye catching and almost always have news about a sale or have a coupon attached. Before you know it, you are on their website clicking away and filling your cart so you can take advantage of the coupon or sales.  It’s a bad habit that can easily derail your budgeting efforts. To combat this problem, simply don’t read the newsletters. Either delete them before reading or unsubscribe from them entirely. If online shopping is your kryptonite, you don’t need to be tempted by reading about their products everyday in your inbox.

Spending More to Get Free Shipping

Speaking of online shopping, do you ever fall into the “free shipping trap?”  You know the one where you only want a $12 item, but shipping is $5 unless you spend $35, so to save the shipping cost of $5, you spend an extra $23.  That kind of math doesn’t really add up. It’s better to spend the $5 in shipping than to spend extra money on something you really don’t want just to reach the minimum.  Don’t fall into this trap–instead stop and think about what you are purchasing and whether or not just paying the shipping cost will benefit you more in the long run.

There are many spending habits that we get into when we aren’t paying attention.  It’s good to be mindful of all of our purchasing habits. If you find yourself falling into any of these bad ones, try to renew your thinking and change your spending ways.  Your wallet will thank you.

4 Budget Tips Every Young Couple Should Know

When you are young, learning how to make a budget work for you can take some time.  When the time comes to get married, trying to mesh your budgeting style with another person’s style can be daunting.  Plus, as a couple, you have to think about budget categories that you might not normally have as a single person. It’s definitely a time of learning.  If you are in this situation currently, or you see yourself being there in the near future, here are some tips you should know about budgeting as a young couple.

Plan for Life Events

Even if buying a house, having kids, or finishing your Master’s Degree isn’t on the calendar for the immediate future, if there are big life events that you eventually want to get around to, you need to start planning for them now.  Most life changes are not cheap, and the more you save, the better prepared you can be when you are ready to embark on those journeys. Put a budget category for specific future life events, and put a little money back each month for them.  Even if you don’t save a ton, you will be far ahead of where you started.

Budget Together

A lot of arguments in marriage stem from financial issues.  To help stay on the same page and reduce these arguments, don’t assign the finances to one partner or the other–do it together!  When you are both on board with your financial plan, it is easier to stick to that plan. You can’t feign ignorance when you go off budget if you have monthly budget meetings.  Plan out each budget category so that it fits both of your needs, stick with it, and don’t be afraid to change things if you outgrow certain categories or methods.

Make Room for Fun

When most people think of budgeting, they think of strict rules and no fun.  That simply isn’t true. Sure, budgeting does come with some guidelines and rules, but you can build the fun right into those parameters.  

First, have a “fun money” category.  Agree upon a set amount of money for each person to just do whatever they want.  Coffee, movies, books, shopping–whatever they want to spend that money on gets a free pass.  When you have a little fun money, it makes it easier to stick to your budget as a whole because you feel as if you can still be whimsical and slightly impulsive.  Just stick within the fun money budget, and you can spend that money guilt-free.

Secondly, make budget items for vacations or special events.  Having a special concert, vacation or weekend activity on the calendar will give you something to look forward to while you are sticking so close to your budget in every other area.  

Don’t Stress–Keep Going

Learn how to move on if you mess up.  There will be days, weeks, or months where your budget and spending does not go as planned.  That’s ok. Learn from your mistakes, adjust your budget, and try again. As time goes on, you will get better at budgeting and mistakes will happen less often.

Budgeting can be harder when you are doing it with another person, but if you include each other in the process, make a reasonable plan you both can stick to, and leave some room for fun, you will be winning with your finances in no time!