How We Combine Multiple Budgeting Strategies
There are so many different budgeting strategies out there, how do you know which one will work best for you? We found the best way for us by trial and error. It may take some time and it may take some mistakes for you to find the best way for you. I will explain each of the strategies we have used and our opinions of the strategy and what we have taken away from that method. I will eve share some common methods that we don’t use and our reasoning for not including them. Budgeting strategies are not a “one-size-fits-all” so what works for us, may not work for you, in fact you may choose to use only one strategy rather than a combination like we have done.
This method allows you to spend 50% of your income on living expenses (rent/mortgage, utilities, etc.), 30% on fun/ spending money and 20% towards savings/debt.
We used this as a guideline for determining how much house we could afford. I am slightly over 50% of my income towards living expenses, but Mr. LLB is slightly below 50% as he makes more than me and we put similar amounts into our joint account out of our paychecks which only goes towards this category. I would not say this is a “budget” per se, but more of a guideline for you to determine what you can and cannot afford. Also, his budget switches the 30 & 20% categories as he applies more towards debt and savings than he does to his spending money. I would advise considering that switch if you have high amounts of student or credit card debt.
This is my favorite. Ok, sorry for the nerd moment. Any kind of revolving debt that you can set up automatic payments can be paid this way and you will shave off months of payments and lots of interest by using this strategy. The way it works is you set up a bi-weekly payment to automatically debit from your account. You won’t even notice that you make an extra monthly payment every year. Bonus: that extra monthly payment goes 100% towards the principle balance. I would recommend trying this method for any debt accruing interest like a mortgage or student loan. I would not recommend this for utilities or rent payments.
I have done this with every car I have bought, it helps you to stay ahead of the depreciating value in addition to paying it off faster than the terms of the loan. We unfortunately are not utilizing this method for debt at the moment. Stay tuned because I am already pushing to change that for at least two of our debts. We are currently using it to increase our savings both joint and individual.
So this is also technically a debt-repayment method as opposed to a “budget strategy.” Either way, it is an option and a pretty good one as well as its alternative. The snowball method involves putting all of your extra money to be applied to debt towards your debt with the lowest balance and then once that is paid off, move onto the next lowest balance.
This is how the hubs is paying his student loans. I am doing my best not to overstep and demand he do things my way (at least not all of the time). I prefer the avalanche method, but this is his debt that he signed for before he met me and he is paying off with his money so its really not my place to tell him how to do it. In the end, I am happy as long as he is paying it and some extra every month.
This is like the snowball method in that once a debt is paid off you take the amount you were paying and begin applying it to your next debt. However, the difference is that you attack by highest interest rate first. This will save you the most money in interest over time. Also, technically a debt payoff strategy not necessarily a budgeting strategy.
I have always been #teamavalanche. It is the most effective way to pay off debt and saves you the most in interest. However, recently my eyes were opened after reading about one blogger’s choice to pay off loans with this technique and how it is only costing him an extra $67 over the course of the loans to use the snowball method. This just goes to show that what works for one person may not be the best for another. Part of the reason Mr. LLB is using the snowball method over the avalanche is wanting more flexibility by eliminating one monthly payment. Luckily (or maybe unluckily), the interest rates for Mr. LLB are all fairly similar. One day I will figure out how much interest he will end up paying with each method, but today is not that day.
This budgeting strategy requires you to account for every single dollar of your income. Every dollar has its place and cannot go elsewhere. This is the least flexible of the budget strategies and does not allow for much error or emergencies. I would advise having a hefty emergency fund if this is the strategy that you chose. However, this budget works well for people with a lack of discipline only if you are the type that thinks “Well I know each month I have wiggle room in my budget of $40 so I can go buy X, Y or Z even though its not in my budget.” If you are the type to allow this type of spending only if you know that you can, but will be disciplined if you know you have zero wiggle room, then you may want to try this.
I, personally, am not a fan of this budgeting strategy. At all. It may work for some, but I like knowing that if life happens, I have room for it in the budget. I do try to assign the majority of my money to a location, but I like to know that if I stick to my budget in all categories, that I will end up sneaking extra money into my account every month. As of this moment I am using that money to be applied to putting a down payment on my car after my lease is up, our next vacation(s) and flexibility for my weekly spending while I adjust from spending $100 per week to $50.
This would be good to pair with the zero-sum budget. For this budget, you place cash into envelopes based on what the money is to be used for. I recently read about a way to do this when you don’t use cash.
I had never considered this method since I only use cash if I absolutely have to. Had I read about that prior to finding a strategy that worked for me, I may have tried it. We don’t really sue this outside of just creating our budget and making sure we put enough money in each account every month. So its like the lazy envelope budget.
Which of these strategies do you use? Do you use a combination of any of them? Are there any budgeting strategies that you use that are not included?