Different Budgeting Approaches (E) Rated

I have good news for you. There isn’t just one way to approach your budget. In case you’re not familiar with what a budget is, check out this post. Once you’re comfortable with the idea of a budget, it’s time to understand the different approaches to budgeting.

To keep it simple, I’m going to explain two different budgeting approaches. I will then, of course, relate the different approaches to something more familiar. Ok, so for the first approach to budgeting, you can keep things in general buckets. For example, take a look at this:

Expense

Planned Amount

Rent

$1,200

Car

$450

Utilities

$350

Food & Supplies

$400

Fun

$300

Savings

$200

Total

$2,900

This Budget Planner can help get you started!

In This Example

general buckets are used. Rent may include your rent plus rental insurance. The utilities would include electric, phone, water, and other similar expenses. Ultimately, the total of $2,900 should add up and match your take home pay for the month. While a bit general, this approach works.

The second approach to budgeting is a detailed approach. Let’s take a look at this one:

Expense

Planned Amount

Rent

$1,150

Rental Insurance

$50

Car

$400

Car Insurance

$50

Cell Phone

$50

Electric, Gas, Water

$300

Food & Supplies

$400

Eating Out/Bar

$200

Memberships/Subscriptions (e.g., Netflix, Gym, etc.)

$100

Savings

$200

Total

$2,900

 

You Can See

that the total amount spent is still $2,900. The difference is that the second approach provides more detail about where your money is going. Because there is more detail, it becomes easier to see where things don’t go to plan…in case that ever happens. The downside to a more detailed approach is that it does take a little more time to update and maintain.

Let’s relate the different budgeting approaches to your diet. If you’re like me, I attempt to find balance in what I eat. I know I should eat more salad but occasionally, the burger and fries make their way onto the plate. When that happens, I will cut back on a dessert and/or stick with healthier options the following day. To relate this to your budget, you can think of the general bucket approach to budgeting. If your electric bill is $20 higher his month, perhaps you cut back by $20 on your fun spend to balance things out.

Some people, on the other hand, know exactly how many calories they consume during each meal and how many calories they burn each day. They know each slice of bread is 120 calories and if they have toast for breakfast, that they can’t add the avocado to their salad at lunch. If they do, they are going to throw the balance off. Now, with both approaches and comparisons to your diet, if you eat more than you burn calorie wise, you gain weight. If you earn more than you spend, the fatter your bank account gets.

Just in case you need a Diet Planner too!

The Choice

on which approach to budgeting you take is yours. The general buckets approach is better than not having or tracking your budget. The more detailed approach can provide more insight to your spends, but it does require a bit more time. Neither way is, “right”. I just encourage you to pick one and use it vs. not having a clue as to how much and where your money is going!

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