Using Evernote

Practice Common Cents: Building a Budget That Works

“The perception that only low-income individuals are living paycheck-to-paycheck simply is not the case today. Half of Americans in this country are not building a reserve or saving for retirement.”

—Anuj Nayar, Financial Health Officer at LendingClub

Do you struggle to follow a monthly budget? If so, you’re not alone. In fact, the majority of Americans feel your pain. In 2021, 54% of U.S. consumers reported living paycheck-to-paycheck, and 21% said they were having problems paying their bills.

The secret to getting—and staying—on top of your personal finances is to build a budget that works. Personal and household budgeting can help you recover faster from debt, save for a goal, or help you better cope with unexpected expenses when they arise.

If you’ve been overwhelmed by the prospect of developing a budget, don’t fear. Budgets need not be complicated to set up or follow. A little common sense and willpower are all that’s required. To help you beat the budget blues, we’ve rounded up several tried-and-true methods, and some simple yet effective tools, to turn your financial zero into a savings account hero.

Zero-based budgeting

The zero-based budgeting method gives every cent you earn a purpose. This means you allocate all your income to specific categories which you determine according to your lifestyle: investments, debt, savings, expenses, etc. Once everything is allocated, your balance should be zero. If all your funds have been allocated and you come in under budget, you can either add the remainder to another category—such as savings or an emergency fund—or to next month’s budget.

Power tip: Stay on top of your income and expenses with a monthly budget planner template. With just a few clicks, you can implement a personal budget based on your specific needs. Track your success and refine your plan with notes saved as custom templates.

Envelope budgeting method

This cash-only budgeting method requires you to stop swiping plastic and ditch online payments. Every week or month—whichever works best for you—set a budget for each category of spending, draw the allocated amount of cash at an ATM, and place it in an envelope marked specifically for that category.

Spend only from the relevant envelope for the allocated week or month. Let’s say you set a budget of $300 for groceries, for example. You get the cash and place it in your ‘grocery’ envelope. Every time you shop for groceries, you use the cash from that envelope. If you must purchase grocery items online, update the amount on the envelope and remove the cash amount you spent online; this needs to go back into your account. If your allocated envelope is starting to run low before the new month, try to stretch it in creative ways, such as choosing air-popped popcorn for your nightly snack instead of brand-name cereal.

It brings a lot more awareness to your spending when you have to physically take out the money and hand it over every time you purchase something. This is an ideal method for students or individuals who can shop for most of their necessities in person.

Power tip: Track payments, bills, and receipts effortlessly by taking pictures from your phone and saving them directly in Evernote. Organize them straight away according to your customized categories (for example, simply tag all your restaurant receipts “dining” or file them in your monthly “dining” notebook) and easily find them later.

60% solution budget

With the average American saving less than 5% of their income annually, this approach allows you to get well ahead of the trend and build your own financial foundation. Richard Jenkins, the former editor-in-chief of MSN Money, uses a 60/40 percent split for his personal budgeting strategy.

This method requires you to split your finances into two categories. Sixty percent includes necessities, such as food, and nonessentials you are committed to monthly, such as a gym membership or piano lessons. The remaining forty percent is savings which can be allocated to different categories such as a retirement account, short-term savings, or an investment account.

If your monthly expenses exceed the 60% mark, start considering ways to cut back on unnecessary expenditures. However, the amount may vary according to the financial plan that works best for you, and Richard maintains that you should choose a percentage that suits your financial goals. Even so, 5% saved is better than nothing!

Power tip: Set budgeting and payment reminders with Tasks. This allows you to view your payment schedules in an organized hub complete with priority flags, due dates, recurring tasks, and reminders.

The 50/30/20 method

Using this budgeting strategy, 50% of your income goes to necessities such as food, rent, and utilities; 30% goes to so-called “wants” such as entertainment, a new handbag, or golf clubs; and the remaining 20% is set aside for savings. Once again, you can juggle the percentages to suit your priorities and goals. For example, if you’re intent on saving up for a house or car, you might want to spend 10% on your wants and allocate 40% for savings.

Power tip: Create, edit, and manage tables in Evernote to categorize your expenses. Assign a column to each category (necessities, wants, savings) with a target amount based on your income and the percentage allocated. Add and track your expenses accordingly to make sure you’re spending the right amount of money in each category.

Which one is best?

The worst thing you can do when it comes to your finances is be indecisive. The dithering that often accompanies finance management can stop you in your tracks and prevent you from reaching your financial goals. Just the very idea of creating a budget can seem overwhelming, but don’t dwell on what challenges lie ahead. The most productive thing you can do is get started.

When it comes to budgeting strategies, there is no one-size-fits-all approach. The system that works best for you depends on what you’re trying to accomplish. Someone saving for a down payment on a house will require a very different strategy than a person who is nearing retirement or a college student navigating their newfound financial responsibilities.

If you are unsure which route to take, conduct a financial self-assessment exercise. The important thing is to choose the method that is most suitable for your circumstances and financial goals and to stick with it. With a healthy dose of determination and proper planning (sprinkled with some common sense… ahem, cents), you can say goodbye to your budget woes and get cruising on the highway of financial freedom sooner than you think.

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