People say to us all the time, “I think I need a budget”. Conventional thinking, if you’re trying to save, you need to limit what you spend in order to have something left to save. But do budgets really work this way? Budgets rarely ever work because they leave little or no margin for error. They are time-consuming to set-up, tedious to manage and usually result in feelings of deprivation followed by binging followed by guilt. Don’t worry, you’ll do better next month.
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. It allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you.
The different types of budgeting techniques:
1. Traditional Budgeting
It is a method that uses the past year’s budget to create a new budget for this year. Chances of human errors are although high in this sort of budgeting but it has simplicity and ease. If a company follows this type of budgeting, it doesn’t need to rethink every item on the list.
2. 50/30/20 budgeting
- 50 % of your income on living expenses and needs (rent, mortgage, groceries, bills transportation, etc.): after-tax income on needs and obligations that you must-have or must-do.
- 30 % of your income on wants and lifestyle choices (fun and entertainment, dining out)
- 20 % of your income toward debt payments and savings.
3. Snowball Technique
It is used where potential participants are hard to find. It’s called snowball sampling because once you have the ball rolling, it picks up more “snow” along the way and becomes larger and larger. Snowball sampling is a non-probability sampling method.
For example, in the interview phase, snowball sampling can be used to reach hard-to-reach populations. Participants or informants with whom contact has already been made can use their social networks to refer the researcher to other people who could potentially participate in or contribute to the study.
4. Zero Based Budgeting
Zero Based Budgeting, also called ZBB, is the process of creating a budget from nothing without using the prior year’s budget or spending numbers. No activities are assumed to be untouchable. All expenses are judged and must be justified in order to remain in the budget. The management must start from scratch and look at every operation and every activity to determine whether it is worth spending the company’s money.
5. Reverse Budgeting
Reverse budgeting simply figures out how much you need to save and makes those savings automatic and then we spend the remaining amount of money. Reverse budgeting focuses on saving because you can’t spend what you don’t have.
6. 80/20 budgeting
Save 20% and spend the rest 80% is the rule here. The best thing about this technique is that you don’t have to make any complicated numbers and amount. All you have to do is keep the 20% of the amount aside and spend the rest.
7. Cash only budgeting
As you might have guessed from the name, a cash-only budget involves using just cash for all of your spending needs. No credit or debit cards are allowed.
A cash-only budget is typically paired with the envelope budgeting budget system, where you have an envelope for each of the categories in your budget. You can only spend the money you have in those envelopes for the month. When you run out of money, you’re done.
These are the few methods to make your budget technically after analyzing all factors