When it comes to managing money, budgeting is one of the best ways to stay on top of your finances. Whether you’re working on your personal finances, planning for the future, or trying to control your business spending, a solid budgeting strategy is key. One of the most common and reliable ways to budget is through using the traditional budget method.
Today, I’ll walk you through what the traditional budget method is, how to put it into practice, and, of course, share a few handy tricks to make it work even better for you.
What is the Traditional Budget Method?
The traditional budget method, sometimes called the line-item budget, is pretty simple yet effective. It involves splitting your income and expenses into different categories, then assigning a fixed amount to each category. By doing this, you can see exactly where your money is going and make sure that you don’t overspend or even end up in debt.
Essentially, the traditional budget is split into two major parts: income and expenses. First, you have your income—this is the money you bring in, whether it’s from your job, side gigs, or any other sources. Then you have your expenses—these are the costs that you need to pay, which include both fixed costs and variable costs.
The goal with the traditional budget method is to make sure that your total expenses don’t exceed your income. This keeps things balanced and stops you from falling into debt or financial stress.
Breaking Down the Traditional Budget
Let’s dive a little deeper into the key parts of this budgeting method. You should always start by looking at your income—this is where it all begins. You need to figure out how much money you’re making each month. If you have a regular salary, it’s really easy to know exactly what you’re starting with. But if your income fluctuates, let’s say you’re freelancing or working on commissions, you’ll want to average out your earnings over the past few months to get a more clear idea.
Once you have figured out how much money you’re making, it’s time to look at your fixed expenses. These are the costs that stay the same every month, such as rent, utilities, insurance, or loan payments. These are usually really easy to track because they don’t change a lot from month to month.
The next step is to figure out your variable expenses. These are the things like groceries, dining out, entertainment, and any other costs that can change from month to month. These might be trickier to predict, but if you take a look at past months, you can get a pretty good idea of how much you spend on average. Variable expenses is where you have more control, and it’s often where you’ll be able to make adjustments if you are trying to save more money.
Finally, you want to set aside some money for savings and debt repayment. A good rule of thumb is to always try to allocate a portion of your income to either saving for the future or paying down any debts. This can be, of course, a fixed amount each month or even a percentage of your income.
How to Set Up Your Traditional Budget
Now that you know what goes into it, let’s talk about how to actually put your traditional budget into action. As we already said, the first step is to figure out your monthly income, your fixed expenses, and your variable expenses. Once you’ve accounted for all your income and expenses, it’s time to think about savings and debt repayment. A good starting point is the 50/30/20 rule, which suggests that 50% of your income goes to essential costs, 30% goes to variable costs, and 20% goes toward savings and paying debt.
The final step is to track your spending. The most important part of budgeting is making sure that you stick to the plan. You can track your spending manually, using a spreadsheet, or download a budgeting app to help you keep track. The key is to regularly check in with your budget to see if you’re staying within your limits and make adjustments when it’s necessary.
Hacks to Make the Traditional Budget Method Better
While the traditional budget method is a solid strategy, it can sometimes feel a little bit too rigid or time-consuming. So we gathered a list of hacks to make it a little easier and more effective.
First, consider using a budgeting app. While the traditional budget method often requires you to manually track your spending, using special apps can make the process a lot easier. These apps automatically categorize your expenses, track your spending in real time , and give you a visual breakdown of where your money is going. This way, you don’t have to worry about missing anything or forgetting to write it down.
Another great trick is to build a contingency fund. Unexpected expenses can pop up at any time, whether it’s a car repair, medical bill, or something else that you didn’t see coming. Setting aside a small portion of your income each month into an emergency fund can help prevent those surprise costs from throwing off your entire budget. Even just 5% to 10% of your income can add up over time and give you peace of mind.
It’s also a good idea to plan for irregular expenses. Some costs only come up once or twice a year, like annual subscriptions, holiday shopping, or property taxes. To avoid being caught off guard, break those costs down into monthly amounts and set that sum of money aside each month. This way, when the time comes, you won’t have to scramble to come up with the cash.
If you want to save more or spend less, consider cutting back on your variable expenses. This includes things like dining out, shopping for clothes, or other non-essential purchases. Even the smallest changes in these areas can free up money for things like savings or paying down debt.
Another smart move is to set up automatic transfers to a savings account or retirement fund. This way, you’ll make sure that you’re always putting money away without having to think about it. This helps you stick to your savings goals without the temptation to spend that money elsewhere.
Finally, don’t forget to review your budget on a regular basis. Life changes, and so do your expenses and income. Maybe you got a raise, or maybe you moved to a cheaper apartment. Whatever the case, make sure to review your budget at least once a month and make the adjustments that you need. This will help you stay on track and make sure that you’re always working towards your financial goals.
Wrapping It Up
The traditional budget method is a classic for a reason: it’s simple, effective, and puts you in control of your money. By breaking down your income and expenses, you can get a clear picture of where your money is going and how to manage it better. With a little planning and discipline, this budgeting method can help you avoid debt, save for the future, and achieve your financial goals. And with a few hacks like using apps, automating savings, and building a contingency fund, you can make the process even easier and more manageable.
Want to plan your budget, but you don’t want to use an app? We might have the solution for you. Instead, you can try using a budget planner.
Read also: 6 Things You Should Always Buy with Cash
