Home > Personal Finance > How to Find a Budgeting Strategy That Works for You

Comments 0 Comments

In 1890, Sakichi Toyoda invented the Toyoda wooden handloom, a device used to weave yarn or thread, and thus began an entrepreneurial journey, eventually leading to the Toyota Motor Corporation several decades later.

What does an automaker, let alone one that started as a handloom manufacturer, have to do with budgeting?

One of the core principles of the car company is known as “Kaizen,” Japanese for “improvement,” and is encapsulated in The Toyota Way, a set of principles that underlie the company. Much of Toyota’s success can be attributed to continuous improvement.

How This Applies to Your Finances

If we want personal success, we must strive toward the same in our life and our finances. The first step toward improving anything is measuring it. Budgeting is the most basic financial step in measuring your money.

If you don’t know how much you’re making and how much you’re spending, how can you expect to get ahead financially? You can’t even begin to worry about how you should invest your first $1,000 if you haven’t even saved your first $1,000.

Most people don’t budget because it’s a hassle. Not everyone wants to save receipts, enter them into a spreadsheet and calculate how much they might have overspent. Fortunately, that’s not the only way to budget.

There are several ways, three of which I’ll discuss, and you can pick the one that resonates with you.

1. Track Your Spending

Whether you use software, like Mint or You Need a Budget, tracking your spending is the oldest budgeting strategy in the book. With software like Mint, which can pull in transactions and categorize them on your behalf after training, you don’t need to keep receipts and enter them in after the fact. It will read your bank statements for you and handle the busy work.

You Need a Budget is a popular budgeting package that allocates last month’s income to next month’s expenses — making it more of a budget planning tool and less of a budget tracking tool. By looking forward, you can plan for next month rather than react to last month’s activity.

Both of these rely on you, as the user, to track all your expenses down to the penny. If you like the idea of tracking, but hate the idea of tracking to the penny, track to the dollar instead. A popular strategy is to round up every purchase to the nearest dollar. All those rounded up cents can be money that gets swept into savings at the end of the month.

2. Envelope Budgeting

Envelope budgeting is a clever solution that uses physical envelopes as budget categories. Label each envelope with an expense category, establish a spending limit, and divide up your cash into those envelopes. Remember to save one of those envelopes for “savings.” At the start of each month, allocate your resources accordingly and try to stay within the limits of each envelope.

Envelope budgeting works well for people who like to plan their expenses ahead of time and want to rely on cash. Using cash all the time might surrender some cashback or points on credit card spending but it also helps you avoid credit card debt. (Keep in mind, having and using a credit card can diversify the types of accounts you have appearing on your credit reports, which can help you build better credit scores.)

3. Pay Yourself First

Pay yourself first, also known as reverse budgeting, is when you save first. Whether that’s contributing to a retirement account or transferring money to a savings account each month (or both), paying yourself first takes care of the benefits of budgeting first. After you’ve saved your money, you can spend the rest on whatever you’d like because you’re already saving.

This is great for folks who don’t like the idea of tracking every last penny of their spending. By saving first, you get all the benefits of budgeting without the hard work!

I pay myself first and use the 20-30-50 ratio for saving (20% to savings, 30% to housing, and 50% to personal spending) as a guideline.

Budgeting is critically important and everyone should be able to find a method here that they can stick with. Once you’ve established a budget, you have options on how to increase your savings. You can look for ways to cut your expenses or ways to make extra money. Both will help you get ahead and begin moving forward financially.

[Editor’s Note: You can use this free tool to track your financial goals, like building good credit scores, each month on Credit.com.]

More Money-Saving Reads:

Image: BraunS

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team