People have a misconception of what it takes to become financially independent and experience financial wellness.
The success stories we hear and celebrate often follow familiar patterns: extreme cost cutting, hard-nosed budgeting, and exhausting searches for deals.
It doesn't have to be that way.
We can each define our own idea of financial independence and financial wellness, and more importantly, choose how we reach it.
Budgeting is an undisputed foundation of financial wellness, but how you budget is entirely up to you.
If you choose a budgeting method that doesn't suit your way of thinking or doing things, you may end up miserable! Even worse, you likely won't stick with the budget, rendering it ineffective.
I am a detail-oriented person and, for more than 15 years, I have used the Zero Based Budgeting (ZBB) method -- even before I knew it was an official method.
Because ZBB works for me and makes sense to me, I mistakenly thought it made sense to everyone else too -- until I started seeing some of my clients' eyes widen and glaze over at the sight of the massive Excel sheet I proposed they use for budgeting.
Needless to say, they struggled with it and we found a more suitable method.
So what budgeting methods are available? I asked chatgpt and below are the six budgeting methods it produced.
Is there one that speaks to you more than others? Maybe a combination of several methods?
1. Zero-Based Budgeting (ZBB): ZBB involves evaluating every expense from scratch, which can be a good fit for individuals who want to have full control over their spending and align their budget with their changing lifestyle and goals.
2. 50/30/20 Budgeting: This approach divides the budget into three main categories: 50% for needs (essential expenses like housing, utilities, groceries), 30% for wants (non-essential spending like dining out, entertainment), and 20% for savings and debt repayment. This budgeting method can be simple to follow and provides a clear framework for managing finances.
3. Envelope Budgeting: This method involves allocating cash into different envelopes for various spending categories. Once the money in an envelope is used up, spending in that category stops until the next budgeting period. This technique can be effective for individuals who prefer using cash and want to control specific spending categories closely.
4. Automated Budgeting Apps: Many budgeting apps and tools are available that can help millennial and Gen X women track their spending, set financial goals, and manage their budgets automatically. These apps often provide insights into spending patterns and can be particularly convenient for those who prefer a digital approach to budgeting.
5. Percentage-Based Budgeting: With this method, a fixed percentage of income is allocated to various spending categories and savings. It offers flexibility based on income fluctuations and ensures that financial goals are consistently addressed.
6. Pay Yourself First: This technique involves saving a set percentage of income before allocating funds to other expenses. By prioritizing savings, individuals can build an emergency fund and work towards long-term financial goals.