The word budget is often met with an adolescent reaction, such as “Do I have to?”. I too share that same opinion, and show my resistance by breaking a few rules.
I like to think of my budgets as “spending plans” and prefer to be more flexible with my money and financial goals.
However, this is not to say that budgets don’t have their place. As much as we don’t like them, they are still a very necessary weapon for any financial arsenal. They help straighten out our habits and make our long-term money goals more attainable.
To make it easier on myself (and my simple brain), I like to create a few different types/combinations of budgets. It lessens the confusion and the feeling of giving up all together.
1. Monthly budget
A monthly budget is one of the most common ways to track your money. No matter how often you get paid, every month consists of the same type of expenses (rent/mortgage, gas, utilities, food).
I like to create a monthly “snapshot” budget at the beginning of each month. This gives me a quick overview of my payments, that I can finalize once the bills come in.
2. Weekly budget
For those of you who get paid every two weeks or on a weekly time-frame, creating a weekly budget might the best route to take. I still suggest having a monthly snapshot budget, so you aren’t blindsided and broke, during the last week of the month.
I prefer to set up a weekly allowance for things like eating out, getting coffee, buying groceries or gas and etc. These are purchases I make on a weekly basis, so I need to make sure I’ve got money in my account, every week.
3. Yearly budget
A yearly budget analysis is something I started doing at this beginning of this year. While having a weekly/monthly budget is a must, a yearly budget can reveal a lot about your personal spending habits.
For instance, many of us spend more money over the holidays or summer vacation, than we do during other times of the year.
This is also a nice method to use if you’re calculating your spending limits backwards. What I mean is, I thought I was only spending $80 a month or so, for gifts and lending friends/family money.
But when I looked at my yearly spending, it totaled more than $1,700 (Yikes)! Sometimes a yearly budgets helps cut back on spending by shocking us with a bigger dollar figure.
Yearly budgets will also consist of yearly expenses, like contributions to a HSA (health savings account), saving for retirement or insurance premiums. It’s important to include all of the expenses you pay, whether they are weekly, monthly or yearly, so you don’t overspend.
4. Bare Bones budget
A “bare bones” budget is basically a plan for your most basic necessities in life, such as food, shelter, clothing and transportation.
In the event of job loss, medical emergency or death in the family, you may temporarily need to cut out all non-essential spending. The best way to find out if you can survive in an emergency situation like that, is to have a back up plan, with a bare bones budget.
I like to keep my essential living expenses at no more than 50% of my net income. This helps me feel secure that if my paycheck gets cut at work, or I can only find part-time work, I can still pay my bills.
5. Special Event budget
Special events consist of planning for a wedding, quitting your job to work at home full-time, a new home purchase and retirement. These categories will continue to change as we get older and our lives change.
This means they need to be updated over a period of years, and not weekly or monthly like most expenses. This type of budget is set up for long-term goals, and takes a good amount of planning to achieve.
Why you should have multiple budgets
Utilizing all of these budgets will help you achieve your goals of financial freedom and building wealth. Of course, each of us will be drawn to the best budget for our situation.
But I encourage you to try the different ones and test which works best. You will be surprised how each type makes your life and money situation simpler.