Thursday, February 2, 2017

4 Example Budgeting Strategies That Actually Work

When it comes to budgeting, taking the first step is usually the hardest part. If you've never budgeted before, the task can seem overwhelming and confusing. There are so many different ways to go about it - how can you decide which strategy to adopt?

As your trusted community bank at the Lake of the Ozarks, we are here to help you take the first step. We have compiled a few different tried-and-true budgeting strategies for you to consider. There is no need to stress yourself out by trying to reinvent the wheel - feel free to adopt any of these sample strategies.

1. The "Pay Yourself" Method

Some people refer to this as the two-bank method. The premise of this strategy is simple: you direct your employer to deposit your paycheck into an account at a certain bank, and then you essentially pay yourself by directing your bank to transfer a portion of your paycheck into a checking account at a different bank. The key is to not transfer the full amount, leaving something behind ($100-$200 is a good place to start) in the original account.

You then use the money that has been transferred into the new account to support yourself throughout the month. The money that gets left behind gradually accumulates, enabling you to build a comfortable emergency fund. You can use any of the other sample strategies below to determine how to budget the amount that you "pay yourself" - just replace the total income in each of the proposed methods with the amount that you have transferred to your second account.

2. The 50/20/30 Method

Also referred to as "proportional budgeting," this method involves allocating percentages of your income to certain broad categories. Traditionally, people who use this budget allocate 50% of their income towards fixed expenses (utilities, mortgage/rent, groceries, etc). 20% of the their income goes towards their long-term financial goals (emergency fund, retirement accounts, etc). The remaining 30% can be used for discretionary purchases. Depending on your specific needs, you can adjust the percentages slightly or perhaps reallocate them. You can read more about the 50/20/30 rule here.

3. The Basic Subtraction Method

The basic subtraction method is about as simple as it gets. It's perfect for individuals who want to begin budgeting, but who don't want to wrestle with complicated formulas or time-consuming setup. In this method, you take your total monthly income and subtract from it your total monthly bills (or "fixed" payments). Then you subtract from that how much you want to set aside into savings each month (we recommend at least $100-$200). The remaining number is how much you can spend on discretionary purchases throughout the month.

4. The Cash-Envelope Method

Sometimes simply called "cash budgeting" or "envelope budgeting," this is the method that most people are most familiar with. It involves cashing each of your paychecks and physically dividing the dollar and cents into separate envelopes with various categories written on them (gas, groceries, utilities, etc). You then use the cash in those envelopes to make your purchases throughout the month. If you run out of money in a certain envelope, stop making purchases in that category. If a purchase in that category is non-negotiable (such as your electric bill), you can move money over from a different envelope that may be reserved for more discretionary purchases.

Trust First Bank Of The Lake To Help With Your Finances

Budgeting in and of itself isn't particularly difficult - the challenge lies in finding the strategy that works for you. Once you have identified your favorite strategy, you can incorporate it into your daily routine with relative ease. We hope that these suggestions offer you the inspiration you need to successfully incorporate a budget into your financial lifestyle.

If you are looking for a Lake of the Ozarks bank to assist you with the process, consider setting up a checking or savings account in Osage Beach with First Bank of the Lake. Our new Kasasa products can help you further improve your financial situation by earning interest and/or cash back on purchases you make every day. For more information about how Kasasa can help you, visit our website or call us at 573-348-2265.

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First Bank of the Lake - Striving For Excellence
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Osage Beach, MO 65065

(573) 348-2265

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