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Does hearing the word budget make you cringe?  Or remind you of the time you tried tracking every single thing you bought and it stressed you out? You’re not alone.

What is a budget and why everyone is suggesting it?

A budget is simply a plan of where your money is going. It’s as simple as that. Everyone suggests a budget since it is a tool for your financial security.

Haven’t you had a day where you look at your account and are surprised at the amount shown? You don’t remember what you did with all that money and have to look through all of the transactions to jog your memory.  A budget is handy since you are giving yourself the power over your money. No longer will you be surprised when you look at your account since you will know how much money is in your account at any given time.

A budget also helps you think about the future and the financial goals that you have dreamed up. Let’s say that your financial goals are to pay off your debt in 2 years. Your budget should reflect that.

Why is budgeting hard?

There are four reasons why budgeting is hard:

One. It’s something that you never had to do before.

It’s a new skill, and like any skill, you need to practice and give yourself time to master. Typically give yourself 3-6 months with a budget to get the hang of it.

Two. It’s your mindset towards budgeting.

Unfortunately, throughout the years, budgets have been thought of as restrictive plans for your money. You’re not able to have a little fun with your money since it’s not part of the budget. This idea tends to throw people off and stop budgeting completely.

Three. People adopt systems that don’t work for them.

They may see a friend that is doing really well financially and may try to adopt the friend’s system. The logic is if it’s working for them, it can work for me.

Four. It takes time.

Since this is a plan, it does take some time to create and adapt to your needs. You may need to look at your previous bank and credit card statements to understand how you have been spending money lately. If your plan is to track every expense every week, that also takes time.

Feeling overwhelmed? Here are some budget plans that may work for you.

The 50/30/20 rule

This strategy was created by Elizabeth Warren and her daughter, Amelia Warren Tyagi. This plan focuses on your needs and your wants. What they mean by needs are things that will impair your quality of life. Think of your rent, electricity, heat. Pretty much the basics. Other items that may be a need are your minimum credit card payments since your credit score will be affected if you don’t pay the minimums.

What they see as wants are things that are nice to have. Imagine Starbucks coffee every morning, cute notebooks to journal in, cable television. Now that you understand the basic terms, here is the breakdown of their plan:

Step one: Calculate your net income.

It’s the pay you receive on your check or directly deposited into your bank account after all of the taxes are taken out. If your health insurance or retirement contributions are being deducted from your gross income (before taxes are taken out), you will need to add this amount of money to your net income as well.

Step two: Capping your needs to 50% of your net pay.

This is the time where you will add up all of your needs and see how much the total is. If it’s over the 50%, you’ll need to start thinking about making some changes. You may need to start looking at other apartments to lower down your rent. Maybe you’re open to the idea of getting a second job to help you stay within 50% of your take-home pay. Or you’ll need to take from your wants category.

Step three: Limiting your wants to 30% of your net pay.

Such a limitation is to help curb your spending, so you are only buying things that you genuinely want. The items that may be under this category would be things like a night out with friends, take-out, cute notebooks, leather planners, you get the idea.

Step four: Take care of your future by using 20% of your net pay for savings.

So this money is to help you now and later down the road. You can use this money for saving an emergency fund or a retirement plan. You can also use this money to help pay off some of your credit card debt. This extra payment will be on top of the minimum payments that are in your needs category.

If you hate tracking expenses or getting a bit overwhelmed by this rule, the next plan may be the one for you.

The 80/20 Rule

So this one is super simple. You will still need to calculate your take-home pay and add in any retirement contributions back to your net pay. Once you’ve done that, take 20% for your retirement savings, emergency fund savings, and credit card payments. The rest, 80%, you’ll use for whatever else you need or want.

As a bonus, if you want to challenge yourself and set yourself up a little better for your future, try to increase the amount of money you’re saving. Try to go from 80/20 to 70/30 and maybe even 60/40!

This strategy is best for people that don’t want to stress themselves out with calculating their budget.

These are the two most popular budget strategies at the moment. As you become more familiar with budgets, you can start tweaking yours to work better with you. Remember that you should be looking at your budget every 3 months to make sure it’s working for you.

What other budget strategies have you tried and were successful with? Let us know in the comments below.