Say Goodbye to Living Paycheck to Paycheck: Choosing Your Budgeting System

choosing-your-budgeting-system

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Once you’ve determined which budgeting direction you will use, you need to start to layout the specifics of your budget plan.

One of the fundamental parts of creating your budgeting plan is to choose between a cash budgeting system and a digital budgeting system.

These are not to be confused with budgeting tools such as envelopes, check registers, and other types of tools.  All of the tools for budgeting can be customized to fit the system you decide to use.

A cash budgeting system is exactly that.  It’s cash.  No credit cards, just cash.  Of course, when you get to the point of saving, it could be a good idea to open a savings account rather than keeping a large supply of money around, but we’ll get to that later.

A digital budgeting system utilizes credit cards, checking accounts, online interfaces, apps, and many other technological opportunities.  All of your budgeting and tracking is kept in digital form and you are responsible for sticking to your budget without having tangible money to stop you from over-spending.

There are many benefits to both a cash system and a digital system.

Cash Budgeting

Cash budgeting is great for you if you like being able physically hold your money that way you know exactly how much you have at all times without having to log into an app or account.  Cash budgeting is also a great option for you if you dislike or have trouble with technology.  The system you use for budgeting should easily fit into your lifestyle.  If you don’t like being on the computer or phone, a cash budgeting system may be best for you.

Digital Budgeting

Digital budgeting is also a great budgeting system.  This system is good for you if you enjoy technology and find it easier to look in your app to see what your balance is.  While the digital world makes so many things easy for us, you need to pay special attention to your spending.  Unlike the cash system, where you literally can’t spend anything more than you have, the digital system shows no boundaries when you pull out the credit or debit card and run a transaction.  On the other hand, with digital budgeting there are a ton of options for charting your spending so you can analyze where all of the money is going.

Whichever budgeting direction you choose, make sure it fits in with your lifestyle and your budgeting needs.

 

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Say Goodbye to Living Paycheck to Paycheck: Choosing Your Budgeting Direction

Choosing your Budgeting Direction

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Deciding between Reverse Budgeting and Forward Budgeting is one of the first things to do when creating your budget.

Reverse Budgeting in three steps

    • Determine your savings goal
    • Save a set amount each month to reach your goal.
    • Revisit your goal and adjust as necessary

Reverse Budgeting is good for you if any of the following apply:

    • You have a hard time sticking to your budget.
    • You succeed with a strict and well planned structure.
    • You know how much money you will need and when you will need it by.
    • You prefer to have clear goals

Forward Budgeting ‘Forward Roll’ in three steps.

    • Project your future savings.
    • Roll over extra funds at the end of each period
    • Repeat

Forward Budgeting is good for you if any of the following apply:

    • You are disciplined with your money
    • You succeed with a flexible schedule
    • You prefer fluid goals

Take this quiz to see which budgeting type suits you best.  Feel free to use a made up name. Or, if you prefer to take the quiz by hand, the questions and scoring are listed below.

Which Budgeting Type is Best for You Survey

1. You earn $100 extra cash.  What do you do?

      • a. Put it towards rent or other bills
      • b. Put it in a savings account
      • c. Buy something for yourself
      • d. Enjoy a night on the town

2. You are saving up for a new car and need $5000 more.  What do you do?

      • a. Put a set amount into savings immediately after each paycheck
      • b. Watch your spending carefully and spend as little as possible
      • c. Work overtime and put as much money into savings as possible
      • d. Get discouraged and give up

3. Which of the following best describes your five-year plan?

      • a. I live life one step at a time. Plans will change so why make plans?
      • b. I have specific goals and have strategized how to achieve them.
      • c. People actually plan that far in advance?
      • d. I know where I want to be and I will take whatever path presents me with success.

4. How do you prepare your grocery list?

      • a. I don’t, I shop each time I need to cook.
      • b. I prepare a shopping list before and only veer from it occasionally.
      • c. I don’t write a list but I have a general idea of what I need when I go.
      • d. I eat out, so I don’t grocery shop.

5. How do you handle household chores?

      • a. I write a to-do list and check each item off the list as I complete it.
      • b. I let it go as long as possible then clean right before company comes over.
      • c. I have a routine that I follow to keep me on track.
      • d. I don’t clean unless I have to.

Scoring

Add one point for each of the following options you chose.

        Question 1: a or b
        Question 2: b or c
        Question 3: a or d
        Question 4: b or c
        Question 5: a or c

Results

1-2 Points: Reverse Budgeting – You thrive in a structured environment.  You like to be in control of what happens and would prefer not to encounter many unknowns.  You’ve realized that money is not the most important thing in life.  Reverse budgeting is best for you because it allows you to create a structured budget to follow but still allows for carefully planned changes.

3-5 Points: Forward Budgeting – You are organized and proactive.  You know that there are multiple ways to reach an end goal and that as long as you keep moving forward, you will get there.  You are also responsible with your money which allows for some flexibility in the budget.  Forward budgeting is best for you because it gives you the freedom to make changes to your budgeting strategy at any time.

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Say Goodbye to Living Paycheck to Paycheck: Budgeting Basics

Budgeting Basics

This post is part of a series.  To start the series from the beginning, click here.  To browse through the series, click here.

Creating a budget is necessary in order to maintain financial freedom and live well within your means.  If you don’t have a budget, how would you know what ‘within your means’ really is?

There are so many different ways to budget and each person needs to budget in a way that works best for them.

One thing to think about is whether you will use Forward or Reverse Budgeting.  Reverse Budgeting is where you determine your savings goal for a future date and plan your savings based on that goal.  Each paycheck, you put aside the money for savings first and then divvy up the rest for other expenses.  Forward Budgeting or the Forward Roll is where you use projections to estimate your savings at a future date and you roll your extra money into savings at the end of the month.

Another aspect of budgeting is the budgeting system.  There are many different types of budgeting systems, but to keep it simple, there is a Cash System and a Digital System.  The cash system is exactly as it sounds.  All in cash.  No cards, no accounts, just cash.  The digital system similarly is all in savings accounts and credit/debit accounts that are primarily accessed digitally.

With either direction or system, there are many different tools that you can use to support your budgeting plan.  Some tools include the envelope system, the paper system, computer spreadsheets, and computer apps and programs.

Finding the right options for yourself can be a daunting task, but with some guidance, the right system can be chosen to maximize your productivity and potential success.

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