Budgeting methods are an essential aspect that every individual needs to master to effectively plan their finances.
Many people struggle to manage their monthly salaries, leading to quick spending without the opportunity to invest or establish an emergency fund.
However, you don’t need to worry. This article will discuss several budgeting methods for your salary that can be easily implemented. Let’s take a look!
Different Types of Budgeting Methods
Engaging in financial planning is an essential step to living frugally. As the cost of living continues to rise, it’s crucial to manage your finances effectively.
That’s why it’s important for you to learn various salary budgeting methods to avoid overspending and allocate funds for investments or savings.
Now, here are several types of budgeting methods that you can implement to manage your finances:
01. The 80:20 Method
One of the budgeting methods is the 80:20 strategy, also known as the Pareto method.
The goal of the 80:20 method is to prioritize budget planning and enhance the efficiency of financial allocation.
This budgeting method is well-suited for personal financial planning, especially for beginners, due to its straightforward approach.
Through the Pareto method, you can allocate 80% of your income to cover daily living expenses, while 20% is designated for investment or savings.
02. The 50:30:20 Method
The 50:30:20 budgeting method is a widely used form of financial planning among the public.
By utilizing this salary budgeting approach, you can achieve a more organized and effective personal financial plan.
The 50:30:20 method works by dividing your financial plan into three categories.
Fifty percent of your salary can be allocated to cover primary needs, such as food expenses, rent, health insurance, monthly installments, and debt payments.
The next 30% of your funds are designated for secondary needs, including monthly internet expenses, vacations, shopping, dining out, or other lifestyle choices.
The remaining 20% can then be set aside for investments, savings, or building an emergency fund.
03. The 70:20:10 Method
The next budgeting method is the 70:20:10 technique. This budgeting approach also uses a percentage-based system to divide your spending into three categories.
These three categories are as follows: allocate 70% of your money to cover your living expenses, set aside 20% for savings, and dedicate 10% for investments.
The 70:20:10 budgeting method is especially suitable for those who haven’t engaged in personal financial planning before, as its allocation structure is relatively straightforward.
04. The Kakeibo Method
The Kakeibo method is a budgeting approach used by the Japanese community and is considered effective for practicing frugality.
Since ancient times, Japanese society has had its own habit of managing shopping expenses by implementing the Kakeibo method.
This method requires you to answer a set of questions below to conduct personal financial planning.
How much money do you have?
What is the amount of money you intend to spend?
How much money will you save?
How can you enhance the financial planning process?
This salary budgeting method is essential to identify monthly expenditures that might be overlooked in your budget list.
The Kakeibo method can also serve as an alternative for self-reflection on your financial expenditures in the previous month.
By doing so, you’ll be better equipped to create a budget list for the upcoming month.
05. The Jar Method
The next budgeting method is the Jar method. This financial planning technique is considered an effective approach.
When using the Jar method, you need to divide your budget into six categories to make it more specific and organized.
You can allocate these categories based on your priorities. For example, 50% for essential needs, 10% for secondary expenses, 10% for education, 10% for savings, 10% for investments, and the last 10% for emergency funds.
06. The Envelope Method
The next budgeting method is the envelope technique. As the name suggests, this method involves dividing your expenses using envelopes.
You can prepare several envelopes, each labeled with different monthly expenses. The number of envelopes and their purposes can be adjusted based on your priorities. For example, envelopes for primary needs, secondary needs, investments, savings, and other expenses.
This budgeting method is particularly useful if you often make cash payments.
07. The 4 Envelope Method
If the previous method allowed financial planning to be adjusted according to your priorities, this 4 Envelope technique will help you manage your budget when you have a limited income.
You can first set aside 10-30 percent of your income for essential expenses.
Then, the remaining amount can be divided into 4 envelopes, allocated for investment, savings, dining out, and transportation.
08. The Snowball Method
You can do the next salary budgeting method using the snowball method. This method aims to help pay off the debts that you have so they don’t pile up.
You do this by checking the smallest amount of debt to the largest. After that, you can pay off smaller debts first.
That way, you will be more motivated to pay off large amounts of debt.
09. The Divide Method
The next budgeting method includes a simple technique, namely dividing the monthly salary into two parts for daily needs and saving.
This salary budgeting method will help beginners who want to manage finances simply and can be used for long-term financial planning.
10. Weekly Allowance Method
The Weekly Allowance Method is a budgeting technique that is suitable for managing weekly income.
This way, you can plan your weekly finances according to the earned salary without neglecting the budget for investment or savings.
You can set aside about 20% of the money to be collected as savings. This approach will assist you in managing your finances more effectively.
11. Productive Age Method
As the name suggests, the next budgeting method is intended for individuals in their productive age or those approaching the age of 30.
At this age, you not only need to manage financial planning for daily needs but also prepare funds for future preparations.
For example, by planning your finances using life insurance and setting up an emergency fund that can help you during retirement.
12. Financial Planning Application Method
The last budgeting method can be implemented by utilizing financial planning applications.
Currently, many financial planning apps are available for free download on smartphones.
These applications will also assist you in allocating your finances into various categories.
This method will also help you track your daily expenses, making it easier for you to evaluate your monthly budget.
Well, those are a series of insights into various budgeting methods that you can apply if you want to achieve financial freedom. Among the many methods mentioned above, which one is most suitable and you’re willing to try out?
